Strong investor demand for junk bonds has pushed the average price on such corporate debt to its highest level since June 2007, when companies could borrow with ease at the height of the credit boom.
The Bank of America Merrill Lynch index used by many investors to track the junk bond market – bonds sold by companies with credit ratings below investment grade – rose last week above 100 for the first time since the start of the credit crunch.
In the wake of the crisis, the price of many of these bonds collapsed as default rates soared.
However, the recent price rise above 100 assumes that, on average, bonds will be repaid in full.
“Money is coming into the sector, partly because many investors do not see great prospects for stocks,” said Martin Fridson, global credit strategist at BNP Paribas Asset Management. “Investors do not expect an economy that will be booming but are expecting slow growth.”
In other words, investors are putting big money into junk bonds expecting to get paid by government intervention when the junk bonds go sour, or even better expecting the government intervention to come in the form of Helicopter Ben's Magic Printing Press to throw money at the problem to prop these companies up as stable investments. These guys are putting all the money on the roulette wheel on 00, the long shot bet, and expecting to win big time.
We're right back into the same level of economic insanity in 2007-2008 before the collapse. All the signs are there another one is coming, it's just now a matter of when.
Posts
No comments:
Post a Comment