According to an article in today’s Bloomberg, “corporations sold $25.9 billion of junk-rated debt in 2010, the fastest start to a year on record.” The market for riskier debt has since cooled:
“Three months ago, every piece of spaghetti stuck to the wall,” said Jason Brady, a managing director who invests $54 billion at Thornburg Investment Management Inc. in Santa Fe, New Mexico. “Now it seems, the market is more price sensitive.”
The securities slid 1.16 percent this month after gaining 1.52 percent in January and 57.5 percent in 2009, according to Bank of Merrill Lynch data. Merrill Lynch’s Global Broad Market Corporate Index showed.
The extra yield investors demand to own high-yield debt instead of Treasuries has grown to 688 basis points from this year’s low of 599 basis points, or 5.99 percentage points, on Jan. 11, according to the Bank of America Merrill Lynch U.S. High-Yield Master II Index.
One of the many disastrous consequences of the Fed’s zero interest rate policy is the enticing of investors to reach for yield. Last year $460 million fled money market funds for riskier pastures, even high yield debt. As the old Wall Street saying goes, “more money is lost reaching for yield than at the point of a gun.”