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Junk Bonds Related News
 in chronological order

 See also: Junk Bonds Related Books, Junk Bonds Related Scholarly Papers, or Junk Bonds Home Page.

Table of Contents:
 

Junk-bond default rate shows signs of declining
June 26, 2006
From The Wall Street Journal:
 Rising U.S. junk-bond default rates may return to low levels toward the start of the next decade, enough to revive the leveraged-buyout market, according to research from Fridson Investment Advisors.

Martin Fridson, chief executive of investment manager Fridson Investment Advisors said in a note to clients there had been a higher quality of newly issued high-yield bonds this year, which could reverse the rise in junk default rates.

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Intelsat units price $7.08 bln in junk bonds
June 25, 2006
From Reuters:
 Global satellite company Intelsat priced $7.08 billion of junk bonds late Tuesday through three of its units to help repay financing for its acquisition, according to International Financing Review.

Intelsat's offering includes two tranches from Intelsat Subsidiary Holding Co Ltd, about $883 million in senior notes due Jan. 15, 2013 priced with an 8.5 percent coupon at par and $681 million in senior notes due Jan. 15, 2015 priced with an 8.875 percent coupon at par, according to IFR, a Thomson Reuters publication.

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A Glimmer Of Light For Junk Bonds
April 25, 2006
From Forbes:
 A glimmer of light at the end of the tunnel? After three months of increases of more than 5%, credit rating agency Standard & Poor’s U.S. distress ratio contracted slightly to 21.8% in April from 22.2% in March.

Distressed credits are the worst -- junk bonds that have option-adjusted spreads of more than 1,000 basis points (bps) relative to Treasuries. The ratio expresses distresseds' share of all junk.

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Kaeppel’s Corner: I Like Junk
April 23, 2006
From Optionetics:
 I think it’s a “guy” thing. But it is somewhat amazing how much “junk” I find – and cannot quite bring myself to part with - anytime I am compelled to clean out the garage, the attic or the basement. So I guess it should not come as any surprise that I find myself enamored from time to time with “junk” bonds. Excuse me, I meant to say “high yield corporate debt." This past weekend there was an article in Barron’s Financial Weekly extolling the newfound virtues of junk and convertible bonds. So as with most things we read in widely read publications such as Barron’s, the question is, “Are they onto something or not?” Being a “junkaholic” I for one am intrigued. Before jumping onto the bandwagon, however, let’s take a slightly closer look at what we talking about.

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Looking for yield? Junk bonds may be the answer
April 12, 2006
From The Globe and Mail:
 Now's a good time to start buying something that may be lacking in your portfolio.

High-yield bonds, sometimes disparaged as junk bonds, have been crushed at least as badly as stocks since last summer and now offer yields that are double or more what you can get from government bonds. "This is probably one of the best times in the past five to six years to be buying this stuff," said Gavin Graham, chief investment officer at Guardian Group of Funds.

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Videotron, Markwest Lead U.S. High-Yield Bond Sales (Update2)

April 11, 2006
From Bloomberg:
 Videotron Ltd., the Canadian cable- television service provider, and natural gas processor MarkWest Energy Partners LP led high-yield issuers tapping the corporate bond market in the biggest wave of new sales in seven months.

Seven companies sold debt this week, the most since eight borrowers completed offerings in September. This week's sales take the amount of high-yield debt raised so far this year to $13.1 billion. Montreal-based Videotron raised $455 million in its biggest sale of U.S. bonds since 2003, while MarkWest sold $400 million of 10-year notes, $150 million more than planned.

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AbitibiBowater Sells Junk Bonds in Refinancing Plan (Update2)

March 26, 2006
From Bloomberg:
 AbitibiBowater Inc., North America's largest newsprint maker, sold $413 million of high-yield notes as part of its plan to refinance $1.4 billion of debt, some of which is maturing next week.

The three-year, 13.75 percent senior secured debt yields 11.86 percentage points more than U.S. Treasuries of similar maturity, according to data compiled by Bloomberg. The company's Abitibi-Consolidated Co. of Canada unit issued the securities.

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Investors in junk bonds see slim chance of recovery
March 25, 2006
From International Herald Tribune:
 High-yield, high-risk bonds are off to their worst annual start ever, and the biggest investors say there is no recovery in sight.

Junk bonds have fallen 3.9 percent on average so far this year, losing about $35 billion, according to data from Merrill Lynch indexes. Some funds managed by John Hancock Advisers, OppenheimerFunds and Fidelity Investments are down more than 7 percent, showing that even the largest investors were caught off guard by the collapse.

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Bonds with a licence to make money
March 6, 2006
From ThisIsMoney.co.uk:
 For the first time in years, corporate bond funds are looking attractive. While interest rates elsewhere are falling, bonds are offering more income because firms are using them to raise money.

It is all down to the credit crunch. Companies are keen to borrow money from bond buyers rather than banks, because banks are being ultra cautious. So to encourage bondholders they are offering more attractive returns.

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Maturing leveraged loans, junk bonds, may trigger big rise in defaults

March 4, 2006
From Financial Week:
 Despite recent credit woes, speculative-grade borrowers have enjoyed the benefits from the days of easy credit. Indeed, debt refinancing for non-investment-grade borrowers has remained at reasonable levels compared with previous years.

But finding willing lenders may soon become more difficult. Moody’s Investors Service said in a report published today that about $86 billion worth of junk bonds and leveraged loans will mature between 2008 and 2010. Close to $48 billion of that total are bank credit facilities.

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Junk bond recovery rates
February 14, 2006
From Financial Times:
 Welch on a debt to the mob and a dip with some cement boots is probably on the cards. In the somewhat more genteel world of financial markets, creditors usually settle for trying to get back some of the money owed to them.

In the past few years, creditors have had it pretty good, with default rates hovering round record lows. On top of that, recovery rates – the percentage of par value creditors get back on defaulted debt – have been very high by historical standards. Professor Ed Altman of New York University’s Stern School of Business has looked at the recovery rate on US high-yield bonds, based on market expectations just after default. In 2007, it was 66.6 per cent, the highest in two decades.

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High-yield retakes the stage as messenger of gloom
February 12, 2006
From MarketWatch:
 The high-yield market, which frequently plays the lead in financial disruptions, has been relegated to more of an understudy role during the past months' credit contractions. Now it may be stepping into the spotlight.

Since the start of the year, a stream of dismal indicators about the $1.09 trillion universe of high-yield bonds and their issuers have poured out of investment banks and ratings agencies. Spreads have rapidly widened, returns have tumbled and forecasts call for a jump in defaults such as high-yield issuer Quebecor World Inc.'s (CA:IQW: news, chart, profile) missed bond payments before it went bankrupt last month.

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Lehman High Yield Bond ETF: JNK in the Trunk
February 1, 2006
From Seeking Alpha:
 Over the last several months, deteriorating economic conditions have lured investors away from riskier assets and into safe havens such as treasuries and money markets. Since the summer of 2007, spreads for high-yield bonds over treasuries have measurably widened, reaching 7.5 percentage points last week - the largest since 2001. With effective yields nearing 10%, the question arising is whether we are near a tipping point to jump into these high yielding instruments or will fears over future economic uncertainties prove too high for investors to make a risk commitment of this magnitude?

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Doors closed on US junk bonds
January 31, 2006
From Financial Times:
 The US high-yield debt market remains effectively closed for business, with the amount of money borrowed by companies in January the lowest for that month since 1990.

In contrast, the amount of new debt borrowed by investment grade companies has surged in January and is poised to surpass last year's record amount for the month.

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Distressed bond levels highest since Oct 2005-S&P
December 20, 2006
From Reuters:
 U.S. junk bonds trading at distressed levels rose in December to their highest level since October 2005, a signal that corporate defaults are headed higher, Standard & Poor's said on Thursday.

About 6.1 percent of junk bonds were distressed in December, up from 4.9 percent in November, S&P said.

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Horton Gets Junk-Bond Rating
December 19, 2006
From The Wall Street Journal Online:
 Moody's Investors Service has assigned home builder D.R. Horton Inc. its highest junk-bond rating as the ratings agency doesn't see a sector recovery beginning "before well into 2009 at the earliest."

Ratings on senior unsecured and subordinated notes of the nation's largest home builder were also cut further into junk territory. Moody's outlook is negative.

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Is telecoms "junk"-style bust coming to banking?
December 11, 2006
From Reuters:
 Those who remember the implosion of European telecoms junk bonds in 2001 and 2002 may be experiencing a sense of deja-vu in the global banking sector.

Back then, one credit analyst, when asked to comment on the latest slide in the price of a bond issued by a highly indebted telecoms company would just sigh and say: "They all go to zero."

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Junk bond spreads soar to three-year high
December 11, 2006
From FinancialNews-US.com:
 High-yield spreads last month soared to their highest level in three years, according to Standard & Poor’s, as the ratings agency predicted that many deals planned for late this year will be pushed back into 2008.

High-yield cash spreads exceeded 500 basis points in the middle of last month for the first time since November 2004 and the distressed ratio jumped to 4.9% on November 15 from 2.3% in October, according to a new report from S&P.

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The Next Subprime Dominos to Fall: Junk Bonds and Hedge Fund Risk Insurers
November 27, 2006
From The Market Oracle:
 The subprime problem, we were told, would not spread to other markets. It would be "contained." And it has, according to Jim Grant. He quipped last week that it has been contained on planet Earth. The risks coming from rising defaults in the US (now above 600,000 and rising from just 200,000 a few years ago) are clearly spreading to markets far beyond the subprime world.

This week's Outside the Box talks about the next two dominoes that could fall: junk bonds and counterparty risk in the various credit default swap markets. Ted Seides is the Director of Investments at Protégé Partners, LLC, a hybrid fund of funds that invests in and seeds small, specialized hedge funds. He writes this week's piece in Peter Bernstein's Economic and Portfolio Strategy, one of the most respected of market analysis letters. You can learn more about the letter at www.peterlbernsteininc.com.

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Why Citi's 11% Coupon Doesn't Mean it's Paying Junk Rates
November 27, 2006
From Portfolio.com:
 I didn't actually post my first entry of the day at 10:20 this morning, honest: Movable Type seems to have eaten my real first post, about the Abu Dhabi investment in Citigroup. My blog entry compared the 11% coupon on that deal to the 7.5% coupon that Bank of America is getting on its Countrywide investment. It was cheap and snarky, but hey, what do you expect first thing in the morning.

In any case, I didn't really need to go there: everybody else, it turns out, had the same idea. Most journalists, however, alighted on 9% junk-bond yields as the proper comparison.

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Junk bond 'founder' warns over mortgage risk history
November 15, 2006
From FinancialNews-US.com:
 Michael Milken, widely regarded as the founder of the junk bond market, believes defaults from mortgages will be greater than in high-yield bonds.

The financier and philanthropist told the European High Yield Association Conference in London yesterday: "Today many AAA-rated mortgage securities will have higher default rates than single-B industrials."

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Wachovia junk bond financing founders
November 15, 2006
From The Star Online:
 Steven Panagos, the court-appointed custodian of Le-Nature's Inc, searched in vain last November for proof that the water bottling company had US$275mil in annual sales. What he found were two sets of financial records, a trove of jewellery, diamonds, gold watches and toy trains, and as little as US$32mil in revenue.

“It's extremely surreal,'' says Panagos, a turnaround expert with Kroll Zolfo Cooper Inc in Roseland, New Jersey.

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Markets face junk bond glut—just when it’s needed least
November 5, 2006
From Financial Week:
 The high-yield corporate bond market may have dodged one bullet only to find a couple of others heading its way.

Underwriters have walked a fine line since the credit market seized up this past summer. While trying to clear the backlog of high-yield bonds and leveraged bank loans needed to fund already announced leveraged buyouts, they’ve faced down most demands from investors for tighter restrictions on what issuers can do with their money by offering them more attractive yields instead.

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Melrose High-Yield Deal Dies as Sentiment Sours
November 5, 2006
From The Wall Street Journal Online:
 European investors shunned the high-yield market's first bond offering in months, highlighting their increased selectivity.

Melrose Resources PLC abandoned plans Friday to be the first European company to attempt to sell a high-yield bond issue since the summer's credit crunch. After two weeks of sounding out investor interest, the U.K. oil and gas company had enough demand for its €250 million ($363 million) offering and it could have been placed if market conditions had been better, a company spokesman said.

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Markets wait for high-yield revival
October 24, 2006
From FinancialNews-US.com:
 Junk bond bankers, investors and borrowers attending the second Annual European Leveraged Credit Conference in London next month will not be short of discussion topics. The summer crisis has prompted questions about if and when the asset class will recover.

The market was given a boost on Thursday when UK oil and gas company Melrose Resources said it had mandated Merrill Lynch as sole bookrunner to sell €250m ($357m) worth of junk bonds – the first euro-denominated transaction of its kind in more than 80 days. UK bank HBOS has won a subordinate role as joint lead manager – the third time it has worked on arranging the sale of euro denominated bonds in the international primary market.

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Hurry, Hurry, Get Your Junkier Junk Bonds!
October 23, 2006
From Elliott Wave International:
 What do you get when you make a junk bond riskier? A dreck bond? A trash bond? A radioactive bond? It looks like investors will be finding out, since CFO magazine reports that "junk bonds are getting junkier."

Unlike an investment-grade bond, a junk bond is issued by a company with little credit history or a precarious credit history. It carries a low credit rating, usually BB or lower. In turn, this higher-than-usual investment risk means the bond must offer a higher return to investors. During the heydays of the 1980s, the financier who came to be known as the Junk Bond King, Michael Milken, promoted the use of junk bonds in mergers and acquisitions.

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High-yield market in limbo: specialist
October 9, 2006
From MarketWatch:
 There is a standoff in the high-yield corporate debt market as higher spreads are enticing income-hungry investors and oversupply fears linger, but underwriters are holding out in hopes for more favorable prices, according to J. Giordano Securities' managing director.

"It's a very inactive market right now, and there are strong opinions on both sides," said Bill Featherston in a telephone interview Tuesday. "People are digging in, which is creating spreads. There is plenty of supply there if buyers want to take a risk."

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Sri Lanka begins international junk bond roadshow
October 9, 2006
From Khaleej Times:
 Sri Lanka began roadshows yesterday to sell its first overseas bond issue as ratings agency Fitch warned that a worsening of the island’s ethnic conflict could lead to a credit downgrade.

Barclays Capital, HSBC and JP Morgan, which are lead managers to Sri Lanka’s maiden 500-million-dollar 10-year junk-rated bond issue, said in a joint statement they had begun marketing the debt in Europe, Asia and North America.

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He takes most of his chances on junk
October 1, 2006
From The Philadelphia Inquirer:
 Investment manager Andrew Cestone specializes in buying high-yield - or junk - bonds for less than they are really worth.

During the week leading up to the Federal Reserve's meeting Sept. 18 on interest rates, Cestone seized such an opportunity.

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Trashed junk bonds making a comeback
September 28, 2006
From The Los Angeles Times:
 Investors in corporate junk bonds have recouped about half of their losses from the summer credit crunch.

But some analysts warn that the plunge in high-risk bond prices in June, July and August could be a dress rehearsal for what the popular securities might face next year if the economy weakens substantially and more companies have trouble paying their debts.

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Bondholders Hoisted by Petards as Corporate Sales Depress Debt

September 18, 2006
From Bloomberg:
 During the summer of subprime discontent, bondholders refused to purchase the debt of the most creditworthy borrowers unless they could be compensated with extraordinary yields. The companies are returning the favor with the proviso: Be careful what you wish for.

U.S. corporations have sold about $144 billion of bonds since the start of August, luring buyers with above-market yields that promised as much as $400 million in added annual interest, according to data compiled by Bloomberg. CSX Corp., the third-largest U.S. railroad, home-improvement retailer Lowe's Cos. and computer-services company International Business Machines Corp. issued debt with yield premiums of about 30 basis points higher than their existing securities.

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Milken Speaks On Financial Markets In China, India
September 18, 2006
From Forbes:
 Michael Milken, the financial innovator and onetime junk bond king, predicted that China and India would not reach their full potential as leading world economies without functional financial markets.

Milken, a larger than life figure behind the rapid development of the junk bond market on Wall Street in the 1980s before falling foul of U.S. securities regulators and being sentenced to a ten-year jail term, said predictions of China and India’s economic greatness would not be fulfilled unless their financial markets mature.

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New ETF climbs the junk pile
September 9, 2006
From MarketWatch:
 Bond investors have borne the brunt of the credit crunch this summer, but an exchange-traded fund tied to high-yield corporate debt has bounced back in recent weeks.

iShares iBoxx $ High Yield Corporate Bond Fund took a hit as rising defaults in the subprime mortgage market sent bond investors scurrying for steadier ground. The subprime morass sparked doubts about the broader fixed-income market, leading bond buyers to embrace U.S. Treasurys and other top-quality holdings.

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Is the junk bond maket seeing a revival?
September 7, 2006
From Sify:
 Haryana Vidyut Prasheran (HVP) became one of the first companies to accept a non-investment rating.

In other words, bonds issued by HVP will be junk.

Usually Indian companies plainly refuse to accept ratings below investment grade since these have an impact on their ability to gather funds.

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After the credit crunch, a rush to 'junk'
August 29, 2006
From The International Herald Tribune:
 For all the panic about a global credit crisis that created the biggest rush to buy U.S. Treasury bills in two decades, high-yield, high-risk bonds may prove to be the best investment in the debt market.

That, at least, is what some major investment firms are telling their customers.

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What are junk bonds?
August 28, 2006
From The Courier-Journal:
 The more polite term, used by credit-rating agencies, is "speculative grade." More attractive bonds are called "investment grade."

But in the common vernacular, junk bonds carry a higher risk that the company won't be able to make its interest and/or principal payments. In exchange for the increased risk, the bonds pay a higher interest rate.

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Junk bonds bombard unwary
August 22, 2006
From Stuff.co.nz:
 Some finance companies are playing on investors' ignorance about "junk bond" credit ratings to get their money, a leading investment adviser says.

A "junk bond" is a high-risk deposit with a finance company or business.

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Junk Joy: A High-Yield ETF
August 22, 2006
From The Motley Fool:
 Back in the 1980s, high-yield bonds were known as junk bonds, since they were very likely to become worthless. Today these bonds are politely called "high-yield," but with recent turmoil in the markets, some may wonder whether they should still be called "junk." High-yield bonds are rated below investment grade, which should be a clue that there's a good chance they may default. Of course, the flip side is their potential for higher returns.

Rather than invest in one bond and risk having it becoming useless junk, investors should consider a high-yield fund with a diversified portfolio. In the ETF universe, iShares has the oddly named iBoxx $ High Yield Corporate Bond Fund (HYG). HYG tracks the iBoxx $ Liquid High Yield Index, a corporate bond market index compiled by the International Index Company. Since its inception this April, HYG has garnered nearly $110 million in assets.

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Credit Crunch Unearths Good Deals in Junk Pile
August 12, 2006
From The Wall Street Journal Online:
 The dog days of August in the credit markets have turned up some tantalizing opportunities in the junkyard, of all places.

The market for junk bonds -- or non-investment-grade debt with high yields -- is "amazingly cheap," says Christopher Towle, partner and portfolio manager at investment firm Lord Abbett. "There's tremendous value out there."

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Mobile-8 Sells Junk Bonds as Subprime Concerns Fade (Update3)

August 9, 2006
From Bloomberg:
 PT Mobile-8 Telecom, Indonesia's fifth-biggest mobile-phone operator, raised $100 million selling high-yield dollar-denominated bonds, Asia's first in four weeks, as concerns over U.S. subprime mortgages wane.

Mobile-8, which counts Qualcomm Inc. as an investor, priced the bonds maturing in March 2013 to pay a coupon of 11.25 percent, according to Bloomberg data.

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S&P, Fitch cut Boston Scientific's debt to junk
August 3, 2006
From Reuters:
 Standard & Poor's and Fitch Ratings on Friday cut their ratings on Boston Scientific Corp. (BSX.N: Quote, Profile , Research) into junk territory, citing the company's decision to retain its endosurgery business after looking into selling a minority stake through an initial public offering.

"We believe we can create more shareholder value with the endosurgery group remaining wholly owned by Boston Scientific, and we have concluded that an IPO would have reduced -- rather than enhanced -- Boston Scientific's shareholder value," Chief Executive Jim Tobin said in a statement on Thursday.

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Junk bonds became majority in Q2
August 2, 2006
From CNNMoney.com:
 The corporate bond market tipped to junk in the second quarter of 2007, with speculative-grade issues in the majority for the first time in 25 years, Standard & Poor's (NYSE:MHP) said in a report distributed Thursday.

Speculative-grade, or 'junk,' bonds are now 50.7 percent of rated corporate bonds, according to S&P.

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Hard Times for Junk Bonds
July 30, 2006
From The Motley Fool:
 While most long-term investors tend to focus their attention on the stock market, they can sometimes forget that the bond market has a life all its own. Sometimes, bonds do well when stocks do; sometimes not. And as stocks become more volatile, the party may be ending for one segment of the bond market that has enjoyed several years of outsized gains.

All good things must end
Fixed-income investors in general have done well over the past several years, helped partly by a low interest-rate environment and a solid economic backdrop. But high-yield bonds, also known as junk bonds, have posted the greatest gains, recently returning more than some equity indices. For example, the Credit Suisse High Yield Bond Index has posted an annualized 11.8% five-year return through June 30 -- way ahead of the Lehman Brothers Aggregate Bond Index return of 4.5%, and even eclipsing the S&P 500's 10.7% return!

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US junk bonds fall after financings pulled - KDP
July 26, 2006
From Reuters:
 U.S. junk bonds fell one point or more on Thursday amid ongoing concerns about the housing market and the postponement of buyout financing packages, an analyst at KDP Investment Advisors said.

Banks on Wednesday pulled financings for the buyouts of DaimlerChrysler AG's (DCXGn.DE: Quote, Profile, Research) Chrysler Corp. and Alliance Boots [AB.UL] as investors balked at funding the deals. Junk bonds were down about one point on average, with some bonds down more, said KDP market analyst Justin Monteith.

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The Gap Is Widening (if Only a Little) in Bond Market Yields
July 22, 2006
From The New York Times:
 THIS spring, the gap between the yields of some of the riskiest bonds and Treasury issues narrowed to nearly the vanishing point.

But lately, some investors have started to mind the gap.

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Junk Bonds: Are the Risks Worth Taking?
July 22, 2006
From The Wall Street Journal:
 Junk bonds are weakening after several years of good times, creating a temptation for investors who might want to shift into mutual funds that focus on these investments. Junk-bond mutual funds attempt to generate high income by buying these low-rated corporate bonds, which carry hefty yields.

But analysts urge caution, arguing things could get worse before they get better.

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Markets on alert as junk bonds are mauled
July 13, 2006
From Telegraph.co.uk:
 Junk bonds have suffered a second day of mauling on Asian, European and US markets as investors shun risky credit, raising the risk of contagion for stock markets.

Europe's iTraxx Crossover index, which measures risk appetite for low-grade corporate bonds, had the sharpest rise since the index began.

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Junk Bonds vs. Treasuries: Is it Time?
July 12, 2006
From SeekingAlpha:
 It looks like the junk bond market is finally starting to move. We have not held a position in our portfolios for a very long time.

Is it time to buy? Well, in Tuesday's WSJ article: “The Junkyard Dogs Investors In Some Funds: Rising Risk Premiums Hit High Yield Holdings; ’I Wouldn’t Be an Owner'”, we were left with the impression to shy away. Of course, this follows on the heels of Monday's article: “After Junk Bond Swoon, Is It Time to Buy — or Wait; Jumping in May Yield Big Rewards, but Mess at Bear Deepens Fears.“, where we were left with a rather favorable impression.

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Investors run for cover from defaults
July 6, 2006
From Telegraph.co.uk:
 When Kohlberg Kravis Roberts sat down with investors yesterday to thrash out the terms on which it will borrow £9bn to buy Alliance Boots, the private equity giant faced a tougher negotiation than it imagined when it launched its audacious bid earlier this year.

KKR is discovering that two weeks can be a long time in the debt markets. Investors who last month were happy to provide debt finance at more or less any price are rapidly reassessing their appetite for the high-yield but high-risk "junk" bonds that have financed the biggest takeover boom for 20 years.

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Don't Chuck Your Junk Bonds
July 5, 2006
From TheStreet.com:
 High-yield horror stories may be dominating the financial headlines, but don't kick those junk-bond funds to the curb just yet.

Peter Andersen, head of high-yield investing at Dreman Value Management, says the slew of recent articles questioning the health of the high-yield bond market might be the most he has seen since Michael Milken's last Predator's Ball. Nevertheless, Andersen, whose firm manages $21.7 billion, believes all those worries about hedge fund meltdowns, a glut of supply and historically tight spreads will not take down high yield.

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Unsinkable junk
June 24, 2006
From Economist.com:
 LOTS of people have been waiting for a turn in the credit cycle. But they have been repeatedly frustrated (or, to put it another way, investors have been pleasantly surprised). To misquote Sherlock Holmes, corporate-debt default has been the mosquito that did not bite in the night.

A recent paper by Edward Altman, a Stern School of Business professor who is the academic doyen of the bond markets, shows how remarkable this situation has been. The proportion of high-yield bonds that have been pretty junky, rated B-minus or below, has been high in recent years (see chart below). The most recent figure, for April, was nearly 50%. The worst of all ratings (except for those issues that are already in default) is CCC; this is the rating for around 20% of junk bonds and more than 50% of debt issued by this year’s leveraged buy-outs. Historically, more than half of CCC bonds default within six years.

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Banks fear rout on risky US bonds
June 21, 2006
From Telegraph.co.uk:
 Credit markets across the world were braced for trouble last night after Merrill Lynch abandoned efforts to save two Bear Stearns hedge funds, forcing the sale of $850m (£426m) of sub-prime mortgage bonds and other assets for debt repayment.

JP Morgan and other key creditors have yet to decide whether to enforce margin calls as a panic sell-off in the market for 2006-vintage mortgage securities pushes the two asset management funds towards the brink.

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A Savvy Bet on Sallie's Debt?
June 19, 2006
From BusinessWeek:
 Corporate buyouts can wreak havoc on the bonds of the companies that get snapped up. But they can also create an attractive opportunity for savvy investors.

Just consider Sallie Mae. When a consortium, led by private equity firm J.C. Flowers, announced a $25 billion deal to buy the student lender's holding company, SLM Corp. (SLM), back in April, bond holders started getting scared. Prices on some Sallie Mae debt issues dropped by 17% in the month following the news.

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Junk Bonds: BB Stands For Best Buy
June 13, 2006
From Forbes:
 Every income investor knows that defaults are real risks when it comes to buying certain fixed-income securities. What they are not aware of is just how big a risk it is, and how likely it is to occur. Even rating agencies like Moody's and S&P have failed to warn investors of default risk.

While statistics can describe overall loss risks like the ones experienced by a bond or preferred fund, such statistics are usually not meaningful to individuals with only 10 or so debt securities in their portfolios.

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US HIGH YIELD-Junk bonds may weather rising Treasury yields
June 13, 2006
From Reuters:
 If history is any guide, U.S. high-yield bonds may be a good bet for fixed-income investors in the event that Treasury yields continue rising.

In seven of the eight most recent years when there was a sustained rise in Treasury yields, high-yield bonds performed better than Treasuries, and in four of those years, they posted above-average returns, Martin Fridson, publisher of high-yield research service Leverage World, said on Wednesday.

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U.S. Junk-Bond Risk Premiums Decline to a Record Low (Update5)

May 30, 2006
From Bloomberg:
 The extra yield investors demand to own U.S. junk bonds instead of Treasuries fell to a record low on speculation the economy is accelerating, bolstering the ability of companies to meet their debt payments.

Risk premiums on high-yield, high-risk U.S. corporate bonds narrowed to 2.42 percentage points on average yesterday, based on Merrill Lynch & Co.'s high-yield index, which has tracked yield premiums since the end of 1996. The spread is half the average of about 5 percentage points over the past five years, and is down from more than 10 percentage points in 2002.

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Morgan Stanley takes two for European high-yield trading push
May 29, 2006
From FinancialNews-US.com:
 Morgan Stanley has boosted its leveraged loan and high-yield bond and derivative trading team in London amid a scramble to build in a new area of the leveraged finance market that some expect to grow dramatically.

The US bank has hired Barclays Capital’s former head of loan trading and a trader from Deutsche Bank to build out its European business.

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The end of junk bonds
May 25, 2006
From Risk:
 New research from S&P hints that the "junk bond" category could be a thing of the past. The spreads on both investment-grade and junk bonds (sorry, speculative-grade bonds) are at record lows, thanks to, basically, huge amounts of capital looking for a home. Almost half the corporate world is now junk grade, driven down by growing leverage and growing tolerance from lenders.

CFO.com: For example, wrote S&P, from 2003 to 2005 investment-grade spreads slid close to 100 basis points; during the past 12 months, they have averaged 133 basis points.

The spread for speculative-grade debt has also contracted sharply, from 800 basis points in January 2003 to about 340 basis points during the past 12 months.

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A high-yield hunter finds value in U.S.
May 24, 2006
From The International Herald Tribune:
 Andrew Feltus, manager of the Pioneer Global High Yield Fund, expects U.S. junk bonds to outperform those in Europe and emerging markets, on the view that the Federal Reserve will refrain from raising interest rates.

Feltus, who runs the fund at Pioneer Investment Management in Boston, expects the U.S. central bank to hold its target interest rate at 5.25 percent for the next 12 months, encouraging economic growth and keeping risk premiums on speculative-grade debt close to record low levels.

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Junk Bonds May Repeat Crash of 2002 on LBO Credits (Update1)

May 15, 2006
From Bloomberg:
 Never have so many made so much money from junk bonds, and that worries Dan Fuss.

Fuss, whose $10.7 billion Loomis Sayles Bond Fund has been the best performer among its peers the last 10 years, says high- yield, high-risk securities are showing unmistakable signs of a bubble. Yields are near record lows relative to government securities even though sales of the riskiest bonds increased 39 percent from last year, debt has grown faster than earnings and the economy is expanding at the slowest pace in five years.

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GMAC Raises $2B in Junk Bonds
May 10, 2006
From Forbes:
 GMAC LLC, the former lending arm of General Motors Corp., Thursday tapped into the bond market's seemingly insatiable demand for new debt to raise $2 billion, double the initially expected amount.

This was the financing company's first junk bond offering in six months.

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Fidelity, Putnam Curb Junk Bond Holdings After 10-Month Rally

May 3, 2006
From Bloomberg:
 Fidelity International and Putnam Investments say the best is over for below-investment-grade bonds after the longest rally since 1998.

From Ford Motor Co. in Dearborn, Michigan, to Royal Ahold NV in Amsterdam, junk bonds have gained in each of the last 10 months, returning an average of 12.2 percent since July, according to indexes compiled by Merrill Lynch & Co. Government bonds returned 2.01 percent in the same period, Merrill says.

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Moody’s cuts ratings on subprime bonds
May 3, 2006
From FT Alphaville:
 More challenges are hitting bond investors who own securities backed by risky mortgages, says the Wall Street Journal. Over the past two weeks, Moody’s Investors Service cut credit ratings on more than 30 bonds that were issued in 2006 and backed by pools of “subprime” mortgages, home loans made to consumers with sketchy credit histories. The downgrades came as more borrowers defaulted on their mortgages and caused losses to spike among the pools. More than half the bonds that were downgraded were originally rated “investment grade” but were cut to “junk” status, because they now are viewed as much more likely to lose money. A few bonds with weak ratings already have been eroded by losses, which means investors in those bonds probably won’t be repaid. “It’s embarrassing for a ratings company to downgrade bonds so quickly” after the bonds were issued, said Paul Ullman, chief executive of HFH Group, a New York hedge fund active in the mortgage market. “It reflects poorly on all parties in the underwriting process and their judgment of the credit-worthiness of the bonds.”

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Reach for yield doesn't mean taking more chances
April 23, 2006
From MarketWatch:
 High-yield bond mutual-funds are understandably attractive to income-seeking investors, but you don't necessarily need to dip into such risky corporate debt to find better payouts.

Like high-yield bond portfolios, so-called floating-rate funds, also known as bank loan funds, deal with corporate debt below investment-grade. The difference is that these bonds are originated by banks rather than the companies themselves.

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A Search for Yield Leads Some Back to Bonds
April 22, 2006
From The New York Times:
 FOR generations, turmoil in the stock market has driven investors to bonds. Not only are bonds less subject to price gyrations, but they also provide more income as you sit out the equity storm. Particularly in foul weather, some bonds belong in virtually every portfolio, many financial advisers say.

“I believe that’s an absolutely essential thing to do,” said John C. Bogle, founder of the Vanguard Group and now a securities researcher and author. “Your bond position should equal your age — or maybe your age minus 10 years. So if you’re 70, you should have 60 percent bonds.” Mr. Bogle, who advocates a low-risk approach to investing, clearly favors low-cost mutual funds as a sensible way to hold a diverse portfolio containing both stocks and bonds.

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Should we junk bonds?
January 25, 2006
From ThisIsMoney.co.uk:
 When interest rates are rising, it's possibly the worst time to invest in corporate bonds, because their value is likely to fall.

Yet investors are piling money into these funds, often on the advice of salesmen in High Street banks.

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Bonds: Both risk and yield drop for junk bonds
January 24, 2006
From The International Herald Tribune:
 The risk premium on high-yield, high-risk corporate bonds fell Tuesday to its lowest level in a decade after a drop in oil prices and surging consumer confidence fanned optimism that defaults would wane.

Investors demanded only an extra 2.69 percentage points in yield on average to own junk bonds instead of U.S. Treasury securities. That is the smallest gap since 1997, according to Merrill Lynch data. The spread has narrowed by a percentage point from a year ago, leaving it well below its five-year average of 5.17 percentage points, the data show.

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Milken Says Credit Could Free $100 Trillion for Poor (Update7)

January 18, 2006
From Bloomberg:
 Michael Milken, the junk bond billionaire turned philanthropist, said developing countries could free up trillions of dollars by creating markets based on mortgages, credit cards and loans.

``There's enormous opportunity for people to solve some of the problems of the world through finance,'' Milken told 600 people at a standing-room only investor conference in London today.

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UPDATE 1-Global junk bond default rates falls in Dec - S&P

January 17, 2006
From Reuters:
 The global junk bond default rate fell to 1.09 percent in December from 1.19 percent in November, as ample access to financing helped companies make good on their debt, Standard & Poor's said on Wednesday.

The U.S. junk bond default rate, which ended 2006 at a near record low of 1.26 percent, will likely edge up slowly this year to about 2.5 percent to 3.0 percent, S&P said in a statement.

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S&P cuts Aramark's unsecured debt deeper into junk

January 9, 2006
From Reuters:
 Standard & Poor's on Tuesday cut its ratings on Aramark Corp.'s (RMK.N: Quote, Profile , Research) senior unsecured debt deeper into junk territory, citing lower subordination of the debt in the facilities management company's capital structure.

Aramark said last week it plans to sell $2.27 billion of junk bonds as part of a $6.53 billion financing for its leveraged buyout.

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US HIGH YIELD-Some see junk outperforming before election

January 9, 2006
From Reuters:
 With a U.S. presidential election campaign starting to gain momentum, some bond market investors think junk bonds will start to heat up as well.

That's because investment funds that focus on junk bonds have tended to outperformed in the first quarter of years before a U.S. presidential election, like this one, and they could repeat that performance again.

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Bank Loans Lure KKR, Carlyle With Junk-Bond Returns (Update2)

December 27, 2006
From Bloomberg:
 Investors are finding junk bond yields with about half the risk in an unlikely place: the U.S. loan market.

Borrowers with non-investment-grade ratings such as photography company Eastman Kodak Co. and tissue maker Georgia Pacific Corp. pay interest of 7.80 percent on average for loans, a quarter of a percentage point below yields on bonds with similar ratings. The gap is the narrowest in eight years, according to data compiled by Lehman Brothers Holdings Inc.

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Takeover activity predicted to reach fever pitch

December 27, 2006
From The Sydney Morning Herald:
 ALL THE variables are in place for acquisitions in 2007 to surpass this year's record $US3.6 trillion ($4.6 trillion).

US stocks are trading close to the cheapest price-to-earnings levels in a decade, according to Bloomberg data. Yields on junk bonds used to finance takeovers also are near 10-year lows, Merrill Lynch says. Leveraged buyout firms have $US1.6 trillion to spend, Morgan Stanley estimates.

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Era of junk bonds tipped

December 15, 2006
From The Standard:
 Junk-grade Asian companies will rush to sell international bonds next year as they seek funds to expand and take advantage of voracious investor appetite for higher returns.

"Demand for high-yield, attractive structures and investors' ability to analyze and track these deals has led to an explosion in demand that has catalyzed issuers into coming to this market for financing," said Mark Leahy, head of debt syndication for Asia at Deutsche Bank.

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Euro junk debt set for good year

December 14, 2006
From Gulf Times:
 European high-yield bonds are set for a fifth straight year of good performance in 2007, with defaults not likely to rise significantly until 2008 thanks to strong liquidity, investors and analysts said.

Junk bonds denominated in European currencies have returned 10.9% year-to-date, according to data from Merrill Lynch, well up on 2005’s 5.8%, buoyed by a default rate at historic lows and strong demand for higher-yielding assets.

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Apollo makes two pronged attack on 'junk' bond market

November 27, 2006
From FinancialNews-US.com:
 Private equity firm Apollo Management is aiming to refinance the acquisition debt supporting two of its leveraged buyouts earlier this year by issuing two high-yield bonds simultaneously.

Momentive Performance Materials, the advanced materials business of General Electric acquired by Apollo in September, is set to sell $1.95bn (€1.5bn) worth of junk bonds by the end of this week to part refinance the $3.8bn buyout.

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Real estate, junk bond portfolios dominate

November 22, 2006
From InvestmentNews.com:
 There was a changing of the guard as specialty-real-estate portfolios dethroned small-cap-equity and energy strategies as the top-performing equity separate accounts for the 12-month period ended Sept. 30, according to data released by Morningstar Inc.

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Those bonds still junk

November 22, 2006
From The Kansas City Star:
 For bond investors, it is the age of risk. With interest rates low, investors have been willing to take more risk to get higher returns. And the rewards have seemed to be worth the risks. Defaults have been low, and those who bought junk bonds made more money than those who did not.

Or did they? New research challenges the conventional wisdom and indicates that buyers of newly issued junk bonds have not done very well. The best returns in junk have come from “fallen angels,” bonds that began life as investment-grade issues but later descended into junk status.

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Pontiac bonds hit junk status

November 17, 2006
From The Oakland Press:
 The city's bond ratings have dropped to the noninvestment rate known as junk bonds because of the economy, the growing cost of public safety and the use of water and sewer funds for city operations officials struggled to keep afloat.

Fitch Ratings downgraded Pontiac's General Building Authority, tax increment and water and sewer bonds from BBB - satisfactory at the moment - to a BB category, noninvestment grade.

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Nagin to resuscitate ailing bonds

November 13, 2006
From New Orleans City Business:
 As New Orleans recovers from Hurricane Katrina, one of Mayor C. Ray Nagin’s goals is improving the city bond rating.

When Nagin unveiled his proposed 2007 budget Nov. 1, he said the city’s bond rating had been upgraded to “stable” from the “junk bond” rating it had immediately after Katrina.

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HCA Makes 2006 Record Year For Junk Bonds

November 9, 2006
From Forbes:
 It's officially the junk bond year of record.

On Thursday, Tennessee-based hospital chain operator HCA (nyse: HCA - news - people ) priced its $5.7 billion high-yield offering, pushing volume of junk-bond deals underwritten this year past $217 billion. That puts it higher than the $210 billion record set in 2004. The dollar volume is up 29% from last year at this time, according to Dealogic.

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High-grade primary breaks records; junk not far behind

November 3, 2006
From MarketWatch:
 Corporate borrowing has reached record levels in the U.S. investment-grade bond market and is on the cusp of reaching an all-time high in the global high-yield bond arena as companies continue to enjoy low financing costs.

Investors, who have been hungry for new bonds as old ones mature, have been eager to snap up the offerings amid a global scramble for yield as returns worldwide remain paltry when compared with the past.

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Cleanaway in $160m junk bond deal

November 2, 2006
From The Australian:
 BIS Cleanaway sold off the riskiest part of its debt package yesterday in a $160 million junk bond deal that is understood to have included more institutions than ever.

It is the second-biggest junk bond issue yet in Australia - the Newbridge consortium raised $235 million in August to finance its purchase of the Myer department store chain - and was managed by Credit Suisse.

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European junk bond buyers seek better disclosure

October 30, 2006
From Reuters Italia:
 The European leveraged finance markets must move to level the playing field for buyers of private and public debt instruments or face the possibility of regulation, investors and bankers said on Monday.

There has been growing concern that private information provided to those in the bank loan market could be used to gain an advantage in publicly traded securities such as high-yield bonds or credit default swaps, and widespread doubts about the efficacy of so-called Chinese walls meant to stop the flow of such information.

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Listrik Leads Record Indonesian Bond-Sale Spree as Demand Rises

October 30, 2006
From Bloomberg:
 Indonesian companies, saddled with the highest borrowing costs in Asia, are adding to a record $3.5 billion in bond sales this year as investor appetite for their debt increases.

PT Perusahaan Listrik Negara, the state power company, sold $1 billion of notes this month in the nation's biggest corporate offering ever. PT Bakrieland Development and PT Pakuwon Jati are planning borrowings that will add to the 54 percent increase in debt issues since last year, according to data compiled by Bloomberg.

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Moody's expects to cut HCA debt rating to riskiest junk level on LBO

October 20, 2006
From MarketWatch:
 Investors in HCA Inc. (HCA) bonds will probably see the ratings on their holdings tumble from the top of the junk ladder to almost the floor after the U.S. hospital operator completes its planned $33 billion leveraged buyout.
Moody's Investors Service anticipates that HCA's existing senior unsecured notes due in 2010 and beyond will be slashed a massive five notches to Caa1 from Ba2 once the deal has closed, the ratings agency said Thursday.

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Cablevision may sell $2.8 bln junk bonds for buyout

October 10, 2006
From Reuters:
 Cablevision Systems Corp. (CVC.N: Quote, Profile, Research) plans to issue up to $2.8 billion of high-yield senior notes to help finance its management buyout, the company said in a filing on Tuesday.

The total funding of about $10.9 billion will also include about $8.1 billion of term loans and revolving credit facilities, Cablevision said. Part of the funds will be used to refinance existing debt, with new borrowings totaling about $6 billion, analysts said.

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Low bond defaults mystify, but bottom may be near

October 10, 2006
From Reuters:
 It has been three years since junk bond experts began warning of a rise in defaults as risky companies loaded up on debt, but the most likely scenario now is that defaults will stay well below historical averages for at least another year.

Just as profits and economic growth exceeded the expectations of many forecasters in recent years, junk bonds are breaking a long-standing script that calls for a gusher of defaults about two to three years after a bulge in very low-rated bond sales.

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Recycle junk bonds into higher-quality funds

October 9, 2006
From DelawareOnline.com:
 When you go through all the clutter in your garage, you never know what you might find. A working steam engine. A family of raccoons. Uncle Fred.

Once you've extracted the good stuff, though, it's time to take out the trash. If you've invested in a junk-bond fund, you've enjoyed lots of good stuff -- high income and decent price gains, too. But now might be a good time to recycle some of your junk into higher-quality bond funds.

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Freescale says will issue $6 bln junk bonds for LBO

October 3, 2006
From Reuters:
 Chip maker Freescale Semiconductor Inc. (FSL.N: Quote, Profile, Research) plans to sell $6.15 billion of bonds to help finance its takeover by a Blackstone Group-led consortium, the company said on Tuesday in a regulatory filing.

Freescale also said it has obtained a commitment for up to $4.25 billion of senior secured credit facilities, including a $3.5 billion seven-year term loan and a $750 million six-year revolving loan facility.

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Now might be the time to recycle old junk bonds

October 3, 2006
From The Montgomery Advertiser:
 When you go through all the clutter in your garage, you never know what you might find. A working steam engine. A family of raccoons. Uncle Fred.

Once you've extracted the good stuff, though, it's time to take out the trash. If you've invested in a junk-bond fund, you've enjoyed lots of good stuff -- high income and decent price gains, too. But now might be a good time to recycle some of your junk into higher-quality bond funds.

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Investing: 'Blackjack' bet urged for bonds

September 27, 2006
From International Herald Tribune:
 Bill Gross, manager of the world's biggest bond fund, said investors should take a lesson from blackjack players and increase bets in the debt market.

A rally in U.S. Treasuries is just getting started, and fund managers should add securities beyond the levels in the bond indexes they use to gauge performance, according to Gross, who is chief investment officer at Pacific Investment Management Co. The strategy will increase volatility in their holdings but may bring bigger gains, Gross wrote in a report.

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Don't be nervous

September 22, 2006
From Financial Mail:
 Most people take share and property investment in their stride. But mention bonds and they often shy away, saying: "Leave them to the experts."

Yet the starting point for equity and property investment is a view on interest rates, because yields on government bonds - the ultimate risk-free investment - play an intimate role in the valuations for equity and property.

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Surprising Performance From High-Yield Bonds

September 19, 2006
From Kiplinger's:
 Early in 2006, you couldn't find many positive prognostications about junk bonds. That includes in this space. I wasn't at all keen on junk bonds -- also known as high-yielding corporate bonds. My arguments for ignoring the category -- or at least not adding new money to it -- seemed logical. They included low yields relative to high-quality bonds, signs of a slowing economy, and better alternatives, such as energy pass-through securities and real estate investment trusts. The prospects of a weaker economy, in particular, affected my thinking. That's because slow growth or worse -- declining economic activity -- normally portends more bond defaults and rating downgrades.

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Lyondell selling junk bonds ahead of supply surge

September 14, 2006
From Reuters:
 Lyondell Chemical (LYO.N: Quote, Profile, Research) is attracting a torrent of orders for its $1.775 billion junk bond sale this week, the first of a wave of about $30 billion in high-yield financings expected over the rest of the year.

The sale is the largest U.S. junk bond offering since Ford Motor Co.'s (F.N: Quote, Profile, Research) finance arm sold $2.25 billion on Aug. 3, according to financial data provider Dealogic.

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August global junk bond default rate falls-Moody's

September 11, 2006
From Reuters:
 The global junk bond default rate slipped to 1.6 percent in August from 1.7 percent in July and will rise only slightly over the next 12 months, Moody's Investors Service said on Monday.

The global default rate is expected to finish the year at 2.1 percent and rise to only 2.4 percent by August 2007, Moody's said in a statement.

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Michael Milken Where Are You? Junk Bond Fees Drop to Record Low

August 21, 2006
From Bloomberg:
 On Wall Street, the party Michael Milken started more than 20 years ago is losing its allure.

Junk bonds are paying underwriting fees of only about 1.5 percent this year. While that's more than double what bankers get for investment-grade debt, the selling concession is the lowest ever, according to data compiled by Bloomberg. Today's fees are little more than a quarter of the 4 percent charged when Milken, now a global philanthropist, developed the market for high-risk, high-yield bonds and turned them into the securities industry's biggest moneymaker.

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Fed pause could signal bad news for junk bonds

August 14, 2006
From The Globe and Mail:
 Junk bond investors say the U.S. Federal Reserve Board's decision last week to stop raising interest rates is a signal that the best is over in the market for high-yield, high-risk debt.

The previous four times the U.S. central bank ended a cycle of rate increases, corporate defaults jumped and bonds with ratings below investment grade performed worse than Treasuries, according to data compiled by Merrill Lynch & Co. Inc. Junk bonds fell an average 5.12 per cent in 2000, the last time the Fed stopped boosting borrowing costs, Merrill data show.

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Junk bonds help American fund outgain its rivals

August 13, 2006
From The Seattle Times:
 American Funds' Bond Fund of America produced higher returns than its biggest competitors, including Bill Gross' Pimco Total Return Fund, after manager Abner Goldstine and his team increased their stake in junk bonds.

Bonds held by the $24 billion fund, which Goldstine has helped run since its inception in 1974, had an average credit rating of A as of March, according to Morningstar, as managers boosted their holdings of corporate debt rated below investment grade to 9.3 percent from 8.9 percent at the end of 2003.

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Junk Bond Investors Force VNU, Treofan to Pay Higher Interest

August 4, 2006
From Bloomberg:
 Investors in Europe's $86 billion market for bonds with ratings below investment grade are making it more expensive for companies to pile on debt.

VNU NV, publisher of Billboard magazine, had to increase the annual interest on a $650 million bond sale this week to attract investors. Money managers required Treofan Holdings GmbH, a German packaging manufacturer, to cut its credit line with banks last month before they would purchase its 170 million euros ($218 million) of notes.

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US junk bond funds report $336 mln net inflows

August 3, 2006
From Reuters:
 U.S. junk bond mutual funds reported $336 million of net inflows in the week ended Aug. 2, up from $54 million the prior week, AMG Data reported on Thursday.

Junk, or high-yield bonds, are rated below investment grade and carry high yields to compensate for their risk.

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Junk bonds help boost performance

July 23, 2006
From Asbury Park Press:
 American Funds' Bond Fund of America produced higher returns than its biggest competitors, including Bill Gross's Pimco Total Return Fund, after manager Abner Goldstine and his team increased their stake in junk bonds.

Bonds held by the $24 billion fund, which Goldstine has helped run since its inception in 1974, had an average credit rating of A as of March, according to Morningstar Inc., as managers boosted their holdings of corporate debt rated below investment grade to 9.3 percent from 8.9 percent at the end of 2003. The average rating for bonds owned by Pimco's $93 billion fund is AAA, and the median for rival debt funds is AA.

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HCA junk bonds drop on leveraged buyout report

July 19, 2006
From MarketWatch:
 The Nashville-based company's debt load of $11 billion has made it difficult for lending banks and prospective buyers to offer a price that was high enough to satisfy the company, the Journal reported.

HCA's bonds dropped two to three points on the report. Its 5.5% notes due 2009 were recently quoted at a mid-point price of 95 3/4. Its 5.75% notes due 2014 were quoted at 87 1/2 and its 7.5% bonds due 2033 were quoted at 89.

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Moody's cuts Ford's rating deeper into junk status

July 14, 2006
From Reuters:
 Moody's Investors Service on Friday cut its ratings on Ford Motor Co. (F.N: Quote, Profile, Research) and its finance arm deeper into junk status, saying the automaker will face considerable stress as high fuel prices hurt demand for sports utility vehicles.

Moody's cut Ford's rating by two notches to "B2," five steps below investment grade, from "Ba3."

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Downgrades to junk rise sharply in month - S&P

July 13, 2006
From Reuters:
 The number of companies downgraded to junk status rose sharply in the latest month on causes ranging from leveraged buyouts to high commodity costs, Standard & Poor's said on Thursday.

Nine companies worldwide were downgraded to junk status in the month ended July 11, up from five the previous month, S&P said in a report. Spinoffs, share repurchases and acquisitions were also causes for the downgrades, S&P said.

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Sub prime market best described as "junk"?

June 29, 2006
From Firstrung, UK:
 The way the City chooses to describe various financial instruments can be quite instructive.

If a company has a bad credit record with a significant chance of defaulting on its debts, then its debt is described as "junk". But if an individual is seen as a poor credit risk, the loans they are offered are described as "sub-prime".

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Financing gets tougher as U.S. junk bonds stumble

June 27, 2006
From Reuters:
 Investors are cooling on poorly rated debt as the Federal Reserve's tough stance on inflation and prospects for higher interest rates begin to snuff out a long era of cheap financing for the sickliest companies.

Rattled by two months of investment losses, junk bond investors have been turning their backs on some low-rated debt sales, demanding higher yields or pressing for financial restrictions on companies issuing debt.

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Delphi junk bonds higher on report company to delay hearing

June 7, 2006
From MarketWatch:
 According to the Dayton Daily News, lawyers for Delphi and six of its unions were to meet Bankruptcy Judge Robert D. Drain to reschedule Friday's hearing, due to "intensified" talks between the company and its unions.

In the high-yield bond market, Delphi's 6.55% bonds due 2006 were recently quoted up three points at a mid-point price of 85 1/2. Its 6.5% bonds due 2009 were up 2 1/2 points at a mid-point price of 85 1/2, and its 6.5% bonds due 2013 were up two points at 82.  

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Junk Bonds Ride Steady Economy To Stay on Top

June 4, 2006
From The Wall Street Journal:
 School's out in June for much of the country, but junk bonds and the mutual funds that invest in them are definitely in.

That is the view of investors and others in the market who point to a strong economy, continued low defaults in the range of 1% and a growing list of names on the new-issue calendar for their optimism. Not even Friday's weaker-than-expected increase in nonfarm payrolls of 75,000 could ... 

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Emerging-Market, Junk Bonds Diverge on Commodities (Update2)

May 25, 2006
From Bloomberg.com:
 Emerging-market bonds are lagging behind junk-rated debt in the U.S. this month, as the riskiest securities end more than five years of trading in tandem.

Bonds sold by U.S. companies with credit ratings below investment grade have fallen 0.2 percent this month while emerging-market securities with similar ratings dropped about 2.3 percent, Merrill Lynch & Co. indexes show. The markets moved in lock-step about 93 percent of the time from the end of 1999 through April, according to Merrill. 

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Corporates junk bonds, queue up for term loans

May 23, 2006
From Business Standard:
 After almost three years, the corporate bond market has given way to term loans as the chosen means to meet funding needs of companies.

Dealers said term loans which usually command a premium in terms of interest rates over bonds, now fetch almost the same price or in some cases are even cheaper than the bonds.

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Around the Markets: Pension gap threatens junk bonds

May 17, 2006
From International Herald Tribune:
 The $500 billion deficit in the retirement plans of U.S. companies is about to bite corporate-bond investors.

Goodyear Tire & Rubber, Eastman Kodak, TRW Automotive Holdings and hundreds of other companies that are behind in making pension contributions will have to disclose more information about retirement plans and health care costs in financial statements later this year, the makers of accounting rules say. The U.S. Congress is debating a law that would require companies to start replenishing pension plans.

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Puerto Rico's bonds downgraded to one notch above junk status

May 8, 2006
From Sign On San Diego:
 A major credit rating agency downgraded Puerto Rico's general obligation bond rating to one notch above junk status on Monday, likely forcing the U.S. territory to pay higher interest rates for its bonds.

Roughly $25 billion of government debt is affected by the downgrade to “Baa3,” the agency's lowest investment grade above junk status, John Cline, a vice president at Moody's Investors Service, said in a statement.

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US junk bond fund report $88 mln weekly outflow

May 4, 2006
From Reuters:
 U.S. junk bond mutual funds reported $88 million of net outflows in the week ended May 3, compared with a $16 million outflow the prior week, AMG Data reported on Thursday.

Junk, or high-yield, bonds are rated below investment grade and carry high yields to compensate for their risk.

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Schenectady emerges from junk bond status

April 22, 2006
From Times Union:
 The junk bond era in Schenectady is over.

Moody's Investor Services on Friday upgraded the city's bond rating to investment grade, lifting the city's bond rating above junk status for the first time since 2002 and ending years of embarrassment for a city that once owned the lowest municipal bond rating in the state.

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Munificent Munis

April 17, 2006
From Barron's Online:
 NOW THAT TAX TIME HAS COME -- AND JUST ABOUT GONE -- the municipal-bond market enters a typically weak season. Many investors look to their municipal-bond portfolios for liquidity, meaning they sell bonds to pay Uncle Sam.

Last week, mutual funds that invest in municipal bonds saw outflows of $168 million, according to AMG Data Services in Arcata, Calif. Consequently, prices on munis moved lower and their yields rose by five basis points.

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HomeGold’s Sterling indicted

April 14, 2006
From The State:
 The investigation into the 2003 collapse of Lexington-based HomeGold Financial reached the state’s business elite Thursday with the indictment of Jack Sterling on securities fraud and conspiracy charges in connection with one of the largest bankruptcies in S.C. history.

The indictment says Sterling, 68, HomeGold’s former chairman, committed fraud by hiding the company’s problems from the public, investors and regulators. For example, the indictment says, Sterling and others carried out a series of transactions that “gave HomeGold the appearance of solvency” by removing $100 million in debt from the company’s books.

A Pickens-based subsidiary, Carolina Investors, sold junk bonds, funneling most of the money to support HomeGold. When the companies collapsed in March 2003, about $275 million in bonds were rendered nearly worthless, bonds that had been bought by thousands of investors — many of them elderly residents in the Upstate.

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ResCap Gets Punished in Bond Market for Ties to General Motors

April 13, 2006
From Bloomberg:
 Residential Capital Corp. paid the penalty for being part of General Motors Corp. when the mortgage company sold bonds this week.

ResCap, as the company is known, sold $1.75 billion of 6.5 percent, seven-year notes this week, offering investors 163 basis points more than Treasuries with similar maturities. Bonds of companies with similar ratings yield about 115 basis points more than Treasuries, according to Merrill Lynch & Co. data, suggesting ResCap will pay $8.4 million a year in extra interest.

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Junk bonds lose sparkle

March 13, 2006
From The Beacon Journal:
 Holders of junk bonds, take note. This may be the year you learn why high-yield bonds are called "junk.''

Even fund managers who rode junk bonds' fat total returns over the past three years are uneasy. Earl McEvoy, manager of the $9 billion Vanguard High-Yield Corporate fund, believes that junk bond returns won't match those of even money-market funds. He's moving money into higher-quality junk bonds, which should suffer less in a general decline.

The problem with junk bonds starts with their prices. Interest and capital appreciation combined to deliver annualized 13 percent returns the past three years. So they are hardly cheap. As bond prices have appreciated, yields have declined.

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Bondholders Boycott European Debt, Demand Takeover Protection

February 28, 2006
From Bloomberg:
Corporate bond buyers in Europe, bludgeoned by $1.4 billion of takeover-related losses, are on strike.

For the first time in five years, European investors are refusing to purchase bonds unless borrowers promise to buy back the debt if an acquisition sends credit ratings tumbling. BAA Plc, the world's biggest airport operator, Scania AB, Europe's No. 4 truckmaker, and Svenska Cellulosa AB, the continent's biggest tissue maker, were forced to provide the guarantees to sell almost $5 billion of bonds in the past two weeks.

Bond investors are revolting after companies announced $191 billion of takeovers this year, more than double the amount in the same period of 2005, causing debt securities to lose as much 11 percent. European corporate bonds dropped 0.36 percent, including reinvested interest, so far this year as buyouts wrecked credit ratings, according to Merrill Lynch & Co.

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Risk and high-yield junk bonds

February 27, 2006
From Delaware Online:
Let's think about a little number: 4.59 percent. It's the interest you can earn annually on a 10-year Treasury note. That would be $45.90 a year on a $1,000 investment.

Normally, if you're looking for a bit of extra yield, you can buy a longer-term bond. If a two-year T-note's yield is too low, for example, you can usually get more interest from a 10-year T-note.

But we're not living in normal times. A two-year T-note yields 4.69 percent, slightly more than the 10-year T-note. Buying longer-term bonds lowers your yield.

You can, however, boost your returns by investing in less creditworthy bonds. Bonds are long-term, interest-bearing IOUs. Securities issued by the Treasury are considered virtually risk-free, because the U.S. government can raise taxes, print more money, or both.

But bonds issued by corporations tend to pay higher interest. That's because they can go bankrupt and default on their bonds. Bonds issued by companies with poor credit ratings pay the highest interest of all.

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US junk bond funds report $116 mln weekly outflow

February 16, 2006
From Reuters:
U.S. junk bond mutual funds reported $116 million of net outflows in the week ended Feb. 15, following a $40 million net outflow the prior week, AMG Data reported on Thursday.

The outflow comes despite the bonds returning an average of 1.65 percent this year to date, the strongest performance among U.S. fixed income securities so far this year, according to Merrill Lynch.

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Why Junk Bonds Are Getting Junked

February 13, 2006
From BusinessWeek Online:
Time was when the junk-bond market was a vital source of cash for a capital-intensive paper company wanting to borrow billions. Not now. On Jan. 27, Georgia-Pacific Corp. raised $11 billion with no help whatsoever from the junk market. It got its money from so-called leveraged loans, which are speculative-grade loans secured by company assets.

Companies are flocking to leveraged loans because they're offering the cheapest and most plentiful debt capital in at least eight years -- far better than what's available via junk bonds. The terms are so attractive that leveraged loans are pushing aside junk as a key debt instrument for leveraged buyouts. In the past year LBO firms used leveraged loans for all or part of the financing involving retailers Neiman Marcus and Toys 'R' Us, direct marketer Affinion Group, and satellite Internet provider Hughes Network.

The movement toward leveraged loans goes hand in hand with the broader shift in credit markets to jack up leverage and shift risk through new instruments such as credit default swaps and collateralized debt obligations. The trouble is, leveraged loans, unlike regular old junk bonds, have floating interest rates. Typically, the rates are just a few percentage points above the London Interbank Offered Rate, or LIBOR, which is the dirt-cheap rate that banks charge one another for short-term money. The terms on those loans might seem attractive when they're taken. But if interest rates rise, the result could be disastrous for companies that have taken on too much debt.

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Now junk bonds make the grade

February 5, 2006
From MSN Money:
Three years ago, a chief executive proposing to take a profitable public company to the high-yield bond market would have been vilified by shareholders.

The stigma of issuing "junk bonds" and consequential loss of an investment-grade credit rating was regarded as too risky.

Today, European companies have become more consistent users of the high-yield market, regardless of what it does to their credit rating.

Those raising money to pay for acquisitions and leveraged buyouts, or to return cash to shareholders, can borrow at costs near the record lows reached last year. In the past fortnight alone, Ineos, the UK chemicals company, and Fresenius Medical Care, the German healthcare group, issued jumbo high-yield bonds, raising a combined €3.4bn ($4.1bn).

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Waiting for junk bonds to bounce back

January 31, 2006
From The Daily Journal:
Junk bond owners’ only consolation about 2005 is that things could have been worse. Investors in the average corporate junk bond mutual fund last year earned a total return of 2.5 percent, which was interest income minus principal loss, according to Morningstar Inc.

That doesn’t sound like a “high yield” investment – and a high yield, of course, is the whole point of owning junk bonds, those relatively speculative company IOUs that have become popular with many individual investors over the last 15 years.
The question now is whether the junk sector is headed for a rebound this year or whether it has begun a period similar to 1998 to 2002, when buy-and-hold investors in the securities actually lost money over five years.

A nagging concern is that, with the steep decline in most interest rates worldwide since 2002, investors simply aren’t being paid enough for the risk they’re taking in junk issues or even in higher-quality bonds.

Junk bond optimists, however, ex-pect the sector to get back to doing what it’s supposed to do, which is to provide investors with a return significantly better than what they could earn on U.S. Treasury bonds or other investment-grade securities.

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AROUND THE REGION - NRG Sells Off Junk Bonds

January 26, 2006
From The Houston Chronicle:
NRG Energy, owner of power plants in 14 U.S. states, sold $3.6 billion of debt Thursday in the biggest sale of junk bonds since 1989, to help finance its purchase of electricity producer Texas Genco Holdings.

The offering included eight- and 10-year notes with interest rates that are fixed over the life of the securities. The price of Princeton, N.J.-based NRG's debt rose after the bonds were sold following two weeks of company presentations.

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Buyers snap up NRG Energy $3.6 bln junk bond sale

January 26, 2006
From Reuters:
Power producer NRG Energy Inc. (NRG.N: Quote, Profile, Research) on Thursday sold $3.6 billion in bonds, the second-largest high-yield bond sale ever, in a sign of renewed confidence in the once-distressed independent power sector.

The first of the independent power producers to emerge from bankruptcy protection after the collapse of Enron Corp. in 2001, NRG sold the bonds to help for its acquisition of Texas Genco, a Houston, Texas-based power generator.

"They've cleaned themselves up and have done very well," said Clark Orsky, analyst for high-yield research firm KDP Investment Advisors. "They're basically consolidating the industry."

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US junk bond funds report $270 mln weekly outflow

January 26, 2006
From Reuters:
 U.S. junk bond mutual funds reported $270 million of net outflows in the week ended Jan. 25, up from a revised $136 million net outflow the prior week, AMG Data reported on Thursday.

The funds have reported net outflows for the past three weeks despite a relatively strong performance of junk bonds this month.

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High-risk ventures pay off for U

January 22, 2006
From TwinCities.com:
 Three years ago, returns on the University of Minnesota's endowment fund were among the worst of any university in the country. Today they're among the best.

There are three basic reasons why: The stock market recovered; the U hired investment banker Stuart Mason to run the endowment; and Mason has shifted money away from traditional stocks toward a rising mix of real estate, hedge funds, junk bonds and other alternative investments.

It's hard to argue with the short-term results. After a free-fall from $840 million in 2000 to $475 million in fall 2002, the fund is back again above $800 million.

The question is how far the U will go. Mason plans to ask university regents this spring to let him invest more in nontraditional ventures, which make up about 35 percent of the portfolio now and may reach 75 percent in three years — one of the more aggressive strategies in the nation among public universities.

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Around the markets: Junk bonds get riskier across Asia

January 20, 2006
From The International Herald Tribune:
 Junk bonds in Asia returned four times as much as the region's investment-grade debt last year as record low yields sent investors toward riskier bets. This year, people seeking to extend their gains may have to pick the safest of the lowest-rated securities.

Desmond Soon, a fixed income fund manager at Pacific Asset Management in Singapore, said he planned to buy more high-risk, high-yield government bonds or those sold by state-owned companies in the Philippines, Indonesia or Vietnam. He now owns debt from the governments of Vietnam and the Philippines.

Other investors are making the same bet by turning to sovereign debt rated below investment grade and securities from companies with the highest junk ratings. The Philippines, whose bonds were the world's best performers in 2005, has a BB- sovereign credit rating, three notches below investment level, from Standard & Poor's.

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Asia's Junk-Bond Gain Forces Investors to Safer High-Yield Debt

January 20, 2006
From Bloomberg:
 Asian junk bonds returned four times as much as the region's investment-grade debt last year as record low yields sent investors toward riskier bets. This year, people seeking to extend their gains may have to pick the safest of the lowest-rated securities.

Desmond Soon, who manages about $200 million of debt at Pacific Asset Management in Singapore, said he will buy more high-risk, high-yield government bonds or those sold by state- owned companies in the Philippines, Indonesia or Vietnam. He now owns debt from the governments of Vietnam and the Philippines.

It's a bet other investors are making as well by turning to sovereign debt rated below investment grade and securities from companies with the highest junk ratings. The Philippines, whose bonds were the world's best performers in 2005, is rated BB-, three notches below investment level, by Standard & Poor's. Yields for the riskiest bonds aren't high enough to compensate for the chance companies will default on their debt, he said.

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US junk bond funds report $129 mln weekly outflow

January 20, 2006
From Reuters:
 U.S. junk bond mutual funds reported $129 million of net outflows in the week ended Jan. 18, up from $6.5 million the prior week, AMG Data reported late on Thursday.

Investors pulled a record $11.6 billion out of junk bond funds last year, discouraged by lackluster performance of the asset class.

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Keep Reasonable Expectations for the 2006 Bond Market

January 18, 2006
From Morningstar:
 We drone on and on about how difficult it is to accurately forecast the direction of interest rates or the direction of the bond market, so we aren't about to start predicting where rates will be a year from now. However, we can look at the current yield levels of the different bond market segments and make some judgments about their relative attractiveness or lack thereof.

Take the high-yield bond market, for example. With yields in the range of 7 percent to 8 percent, junk bonds are certainly offering more yield than Treasury issues. However, if defaults tick up or junk bonds yields move higher (along with market rates or on their own), prices could dip and investors could be left with just 5 percent or so of total return for the year, in line with what some of our favorite high-yield managers are predicting. But with short-term bonds and funds yielding 4.5% and being far less vulnerable to market fluctuations, it's hard to make a strong case for riskier high-yield funds at the moment.

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Junk bond investors looking for a rebound

January 15, 2006
From The Chicago Tribune:
 Junk bond owners' only consolation about 2005 is that things could have been worse.

Investors in the average corporate junk bond mutual fund last year earned a total return of 2.5 percent, according to Morningstar Inc.

That doesn't sound like a high-yield investment, and a high yield is the point of owning junk bonds, those relatively speculative company IOUs.

The question now is whether the junk sector is headed for a rebound this year or more trouble.

Junk bond optimists expect the sector to get back to doing what it's supposed to do: provide investors with a return significantly better than they could earn on investment-grade securities.

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US junk bond funds report $6.5 mly weekly outflow

January 12, 2006
From Reuters:
 U.S. junk bond mutual funds reported $6.5 million in net outflows in the week ended Wednesday, following an $8.8 million net inflow the prior week, AMG Data reported on Thursday.

Investors have pulled money out of junk bond mutual funds for seven of the past 10 weeks, according to AMG. Rising interest rates and lackluster performance of junk bonds have contributed to the outflows, according to strategists.

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Global junk default rate down for 4th year-Moody's

January 11, 2006
From Reuters:
 The global junk bond default rate fell in 2005 for the fourth straight year but will likely rise in 2006 as economic growth slows, Moody's Investors Service said on Wednesday.

The global junk bond default rate fell to 1.8 percent last year, the lowest rate since 1997 and down from 2.3 percent in 2004, Moody's said. The default rate is expected to rise to 3.3 percent by year end, though that is below its historical average of about 4.9 percent.

The falling default rates have helped junk bonds post investment gains for three straight years, although performance was hurt in 2005 by troubles in the auto sector and rising interest rates.

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And the Laggards Are ...

January 10, 2006
From The Los Angeles Times:
 The typical money market mutual fund generated a higher return in 2005 than most bond funds, and this year is shaping up to be a tough test for bonds as well.

The basic problem for bond funds is that short-term interest rates are at their highest levels in nearly five years, and are close to — and in some cases above — what long-term bonds pay.

That's making it harder for investors to justify the risks in owning bond funds.

In 2005, the average government bond fund produced a total return of 1.9%, according to Morningstar Inc. The average corporate fund's total return was 2%. Total return is interest income plus or minus a fund's net change in principal value.

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