The high-yield index hit record highs on Powell’s dovish Fed outlook. The lowest-rated debt has led the charge with 6% returns this year.
Bloomberg reports Junk Bonds Rage as Clear Channel Sells Biggest CCC in Months.
High-yield debt has already proven to be one of the best-performing asset classes in fixed income this year, led by CCC rated bonds that have so far returned just over 6 percent, Bloomberg Barclays index data show.
Junk bonds and speculative risk taking go hand in hand with stock market gains. With that thought, let’s discuss take a look at bond ratings to see what’s delivering the gains.
CCC Debt Leads the Revival
CCC rated “garbage” one or two steps above “default imminent” is leading the rally.
What’s Powell going to do for an encore? Buy junk bonds?
Mike “Mish” Shedlock
This feels like the dip in 2007 which had a huge gain for a few months before capitulation. The lack of expectation of any downside and fed bailouts forever is no different than a centrally planned private economy. The pain cant be deferred forever.
Some people will do anything to keep a bankrupt economy alive just a little longer.
“How about the Fed stops interfering with the business cycle and price discovery?”
I thought the Fed really was the root cause of the business cycle.
There has always been business cycles.
During some periods, people are more optimistic, for example about the productive impact of a newly discovered technology. Then, it turns out they were overoptimistic, so you get a pullback, and the overoptimism driven malinvestment gets liquidated.
Without a Fed, those pullbacks are obviously short term painful for those who are involved, just as the booms are short term gainful.
Once the Fed steps in to prevent, or alleviate, the busts, business cycles turn into credit cycles. Which are much more long term painful (as they don’t have to end until the empire gets sacked thoroughly), and the intermittent gainful parts become increasingly reserved for only those closest to the credit creators.
We no longer have business cycles but just credit cycles. We are in above neutral expansion now. Asset prices have risen to the point that there are hardly any new buyers at these levels. We need a sale and a recession so buyers can get in cheap again.
The upcoming global recession will simultaneously pop both those bubbles in short order.
I can only gape in awe. My favorite wordsmithing of this time in history is by David Stockman, “…widows and orphans cliff-diving for yield…”
I spoke with Stockman on the phone today – I will pass that on
“What’s Powell going to do for an encore? Buy junk bonds?”
The Fed might do just that if they have to.
The Fed will be trying all it can (more QE, negative interest rates, buy all you see etc.) to make sure stock prices that have reached absurd levels remain perched there. After all, as far as the Fed is concerned stock market level is the yardstick that measures their policy’s success. So we can be sure of some more deranged monetary policy from the Fed.
As long as there remains a single productive person and enterprise left in the US, the Fed WILL ensure that whatever value he and it creates, will be redistributed to some useless idiot in New York somewhere, idly owning “assets.” TIA. This is America..
I can only gape in awe. My favorite wordsmithing of this time in history is by David Stockman, “…widows and orphans cliff-diving for yield…”
He’ll have to start dropping the window rate.