Junk-Bond Rally Premature as Record Defaults Loom, Analysts Say

bloomberg.com:

May 7 (Bloomberg) -- Junk-bond investors who have spurred the biggest rally on record are getting ahead of the recovery as the rate of company failures is about to surge, according to debt strategists from at least six Wall Street firms.

Bonds rated CCC and lower -- those ranked most likely to default by Standard & Poor's, Moody's Investors Service and Fitch ratings --have gained 39 percent since March 9, compared with 14 percent for those rated BB, or just below investment- grade, according to Merrill Lynch & Co. index data. The bonds helped spur the biggest junk rally since Michael Milken helped create a market for the securities in the 1980s.

Read the whole story: bloomberg.com

Comments

[wordvarc]

Traders are again harvesting the energy from the wax and wane of wall street.
It's what brought down the house and only hurts everyone else.

[drymartini1]

this is not the news. The real news is the sub par auction of US treasury bonds.

Most people think its bad, I think its great. US has been getting away with piling on debt by paying these chintzy interest to buyers of bonds all over the world.

Now that it appears that demand of US treasury is slowing down, the interest rates on these should go up and penalize the US govt. appropriately for issuing more debt.

[Lahonda]

Obama's the janitor, you guys? Dirt.

http://www.cspan.org/Watch/Media/2009/05/07/HP/R/18285/Budget+Cuts+Spending+in+Defense+Domestic+Programs.aspx

[research]

You buy junk bonds and insure them with credit default swaps AIG types.

TARP taxpayer money then pays you.

"In Europe, a credit-default swaps index of mostly high- yield companies was estimated to lose 1.5 percent when subtracting expected default losses and yields from five-year government bonds. "

STOP SWAPS OR ALL IS LOST!

see my profile for proof.

[vagabondvet]

Speaking of junk bonds...

http://finance.yahoo.com/q?s=^TNX

What a surge!

[Chaucea]

Nail, meet coffin.

[CaptainHowdy2]

This story indirectly implies that a " junk bond" rally is a good thing.

And you wonder why the world economy is in such a mess.

Sigh....

[ibsteve2u]

Only on Wall Street could you call something "junk" and still find buyers.

[Hailmaryyy]

"The coup de grace is today’s subpar auction of 30 year U.S Treasury bonds driving interest rates in the U.S. higher. If this continues it will end the benefits of lower mortgage rates. The reason the bond auction went poorly is partly a fear of inflation due to quantitative easing programs. But primarily it is the lack of available purchasing power in the bond market. The money doesn’t exist to absorb the new bond issues. The Federal Reserve missed an important opportunity when it failed to up the level of quantitative easing at its last meeting. Hopefully the next time they meet they will understand the green shoots they thought they were seeing were a mirage and significant additional action on their part is still required. Perhaps tomorrow’s unemployment report will serve as a wake-up call. Hopefully it will not be dismissed as a lagging indicator by those whose thirst for recovery is leading them to see mirages. Unless we understand the depth of the crisis we will not take the bold and controversial steps necessary to stabilize the economy."

http://www.escapethenewgreatdepression.com

[BigBagel]

I can't believe the fluff we're being fed. I feel like we're in the old USSR.

[TJCole]

"The one thing history teaches, is that man learns nothing from history...!"

Hegel...

[davidwayneosedach]

Now Obama will pour in another trillion of taxpayer money to back those junk bonds. It will keep him in good graces with investors and the taxpayers won't have to start paying it back until he is out-of-office.

[drkazmd65]

If the are 'junk',... then take them to the scrapyard and let them rust.

Anybody buying anything not at least AA-rated (although the meaning of that is seriously watered down now too) should have known what crap they were buying.

Let the greedy and the stupid fall this time.

[RandVictims]

Why does it seem like every other week we find another major problem?

Seriously, is it worth trying to save Capitalism (assuming it can be saved)

[petef59]

I doubt it. And the apologists will trot out endless explanations of the 'financial instruments' that all us non-finance majors do not understand the markets. Maybe, if it is so damn complicated, it might be the second oldest profession:Bamboozler.

[vippy]

I remember when Milken went to prison. Now I hear he is Rush Limbaugh's friend.

[frankm64]

Rush probably has a few friends who were in prison and undoubtedly many more who should be.