High-yield bonds remain attractive
by NewsHound on 05/07/09 at 10:06 am
The price of high-yield bonds has soared in the past three months as the economic situation has reverted into just a really awful recession. And now that a reprise of the Great Depression is averted, high-yield bonds still look like good value in spite of rising default rates and sizeable gains since March.
Companies issuing speculative-grade debt are the riskiest borrowers in the corporate credit universe because they are most likely to default on their debt. They have all sorts of bad habits such as high levels of indebtedness and highly volatile earnings. At the end of 2008 when the U. S. financial sector was collapsing, investors bailed out of this sector fearing heavy defaults and losses.
Those fears were realized as speculative-grade borrowers have been squeezed in a vise — on one side by falling earnings and on the other by contracting credit. The old story that credit is easy to get — until you really need it, best describes the plight of these companies.
Recent Comments