Is this a sign of peak low rates? Junk Bonds, the highest risk/ highest yield segment of the bond market, has been on a tear over the last year, and those gains (price increase/ yield decrease) roared on in the first days of 2013.
Bond yields have been marching steadily down- the chart on the left shows the prices rising up up up.
One has to ask, in this marketplace of compressed yield and increased frothiness, why jump into a junk credit yielding 5% when you can lock in a 5+% yield from the likes of Met Life, NY Life, or Allstate?
These are companies with rock solid credit ratings, hundreds of years of operating history, massive reserves, and solid operations…
If you’re a buyer of junk bonds, you are either buying with an intent to hold to maturity, or you’re buying in full knowledge that you will likely loose money when you go to sell. If you’re not aware of these two distinct possibilities, then perhaps the junk market is not the right place to be now?
Take another at the high yield but SAFE investment in the form of Secondary Market Annuities – a great fixed income alternative.
Of course, if you’re interested, give us a call.
The original WSJ article is here.