Tuesday, April 6, 2010
Here's an interesting post from today's Financial Times.
Investors are worried about stocks - "too risky!" "the economy is going to double-dip!" "valuations are stretched!"
And no one loves US government debt : "just look at the deficits!" "Obamacare is going to bankrupt us all!" "massive inflation is heading our way!"
But junk bonds - bonds issued by debtors who, by definition, are highly risky credits - are wildly popular. As the FT post notes, BB-rated bonds returned +39% over the last 12 months - but investors in CCC-rated debt more than doubled their money.
In light of the conventional wisdom, this makes no sense. If the economy is really going to tank, junk bonds will get smacked. But investors desperate for yield don't seem to care.
Something is going to give.
FT Alphaville » Investors really ♥ junk. We mean really.