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Junk Bonds Surge As Investors Seek Yield

By    |   Thursday, 19 Feb 2009 09:38 AM

Investors weary of low interest Treasuries and money market fund yields are taking advantage of a rally in corporate debt to move their cash into high-yield, high-risk junk bonds, pushing sales to $2.38 billion last week.

Sales of junk bonds — some of which have recently posted yields above 22 percent — tanked last year as investors and dealers burned by losses shunned risk and dealers responded by cutting their junk bond inventories to the bone.

The recent sales surge, the highest in seven months, signals that riskier assets are joining more conservative investments in a general credit market thaw as investors seek higher yields.

Investors snapped up high-yield debt even as Moody’s Investors Service predicted defaults would peak in November at a rate worse than in the Great Depression.

The ratings company has raised its global default rate forecast to 15.5 percent over the next 12 months, up from last month’s estimate of 15.1 percent, or about three times the current rate.

The junk-bond sales surge gives companies an opportunity to raise cash and repay credit lines, says Broadpoint Capital’s managing director of high-yield bond trading Pete Brady.

“You have companies that recognize that it’s becoming harder and harder to refinance,” Brady told Bloomberg.

“You better do it when you can, because the market can dry up, as we saw back in 2008.”

Even so, investors are increasingly recognizing the benefits of yield product, says Peter Toal, head of high-yield capital markets at Barclays Capital.

"Buying high-yield today with double-digit yields to some investors, can be pretty attractive when they're not earning anything in the money markets," Toal told Reuters.

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Investors weary of low interest Treasuries and money market fund yields are taking advantage of a rally in corporate debt to move their cash into high-yield, high-risk junk bonds, pushing sales to $2.38 billion last week.Sales of junk bonds — some of which have recently...
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2009-38-19
Thursday, 19 Feb 2009 09:38 AM
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