US junk bond frenzy will end in tears

Investors have been piling into junk bonds. But beware of jumping on the bandwagon, especially in America.

In a world of "incredibly low interest rates", the hunt for yield "has become a maniacal pursuit", says Alan Abelson in Barron's. That explains why investors have been piling into junk bonds risky corporate debt that offers high yields to compensate for the danger of default. But investors should beware of jumping on the bandwagon, especially in America.

A "feeding frenzy" has developed in the American high-yield market, says Bonnie Baha of DoubleLine Capital LP. Junk bond yields, as measured by the Barclays high-yield index, have fallen to near-record lows of under 7% as prices have risen. But history shows that a typical junk bond yield is above 10%.

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