Tags: Ross | junk | bond | bubble

Wilbur Ross: ‘Junk’ Bond Market Moving Toward Bubble Territory

By    |   Wednesday, 02 May 2012 07:06 AM

Banks and investors are jumping into the “junk” bond market with both feet, as the thirst for yield and the appetite for risk continue to rage.

Banks are lending and investors are buying to the point that some experts worry a bubble is forming.

"It's not yet unduly dangerous, but we're moving in that direction," Wilbur Ross, the billionaire chief of buyout firm WL Ross & Co., tells The Wall Street Journal.

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Banks are willing to make loans to riskier and riskier credits.

Of the leveraged loans doled out to companies so far this year, 23.4 percent had very low credit ratings of single-B or below. That total is higher than any annual average since 2006, according to Standard & Poor's.

And investors are snapping up the new debt. Junk bond sales hit a record high in the first quarter.

"Investors are willing to do that because they are searching for yield in a yieldless environment," Kevin Sherlock, head of high-yield capital markets at Deutsche Bank, tells The Journal.

Some find the trend worrisome. "These are small steps toward less-disciplined capital markets," Howard Marks, chairman of Los Angeles-based Oaktree Capital Group, tells the paper.

Former FDIC Chairwoman Sheila Bair says the Fed’s low interest-rate policy is to blame.

“Yield-hungry investors are taking on more and more risk. Pension managers are investing in hedge funds, and gullible investors are buying up junk bonds,” she writes in Fortune.

Editor's Note: Sept. 18 Cover-Up Is a Final Turning for America

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Wednesday, 02 May 2012 07:06 AM
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