Tags: junk | bonds | 2012 | disaster

Junk Bonds Thrive for Now, But 2012 Disaster Looms

Tuesday, 20 Apr 2010 01:59 PM

By Dan Weil

Junk bond sales jumped to a record high last year, and some experts maintain the market represents a dangerous bubble.

A whopping $91 billion of junk bonds were issued around the world in 2009, accounting for a record 12 percent of total bond sales.

Investors have gobbled up the issues, as the Merrill Lynch Global Constrained High Yield index produced a 57.5 percent return during the past year.

The rally has pushed so far that junk bond yields have fallen to within 5.83 percentage points of Treasury yields, a 28-month low.

Clearly it’s a major bull market for junk bonds.

“Most of the major concerns seem to be gone,” James Lee, a bond analyst at Calvert Asset Management, told Bloomberg.

“It’s a self-fulfilling cycle. Cash is coming into high yield and high-yield managers are putting cash to work.”

But danger lurks, especially since it’s the riskiest bonds receiving the most attention from investors.

In the three years beginning in 2012, more than $700 billion in risky, high-yield corporate debt starts to mature. And that could really drop a hammer down on the junk bond market.

“An avalanche is brewing in 2012 and beyond if companies don’t get out in front of this,” Kevin Cassidy, a senior credit officer at Moody’s Investors Service, told The New York Times.

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