Turning the Summer Heat up on Junk Bonds

21st June is this year’s summer solstice, marking the turn of the seasons, as the heat is turned up for the Northern hemisphere.

Markets around the world remain gripped in the Greek saga which still does not have a resolution in sight with time fast running out for the country to pay its loan to the IMF coming due by 30 June although Moody’s did say a default on the IMF does not constitute a formal default, it would only be a matter of time.

 

 

Moody’s, however, did caution that high yield bonds are in a dangerous zone at the moment with default risk highest since Dec 2012 as the ratio corporate debt to core profits climbs to levels not seen since late 2011 despite the easy monetary policies around the world.

corp debt to core profits

Source : Moody’s

 

High yield bonds have become the staple for the private banking client, all hankering for the yields. They do lend an air of sophistication to conversations with friends and boasting that you dabble in junk.

Not everybody invests in junk it is those who can afford to that win those admiring glances because junk, as its tag suggests, is high yield for a reason – that is it high risk !

When people ask me if I trade junk bonds, I find myself hard pressed for an answer, simply because I do not know if they are on the same page as me on the definition of junk.

What constitutes junk these days ? The price ? The yield ? Or the rating ? Or all of the above ?

What is the yield cut off for a bond to be speculative ?

to continue reading…….

 

 

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