This playground for the Wall Street elite is a financial mess. Quips FORBES columnist Richard Lehmann: "In this kind of market North Korea would do well."
Even Argentina, still battling in court with investors it stiffed by defaulting on $95 billion worth of bonds eight years ago, is reportedly thinking of a new issue. Sri Lanka, better known for civil war than fiscal soundness, unloaded $500 million (yield: 7.4%). Venezuela just sold two bond issues to domestic investors-$5 billion worth, yielding 4.5% and 3.1%. October has been a great month for basket case issues. Demand for its $1.5 billion issue of five-year bonds in early October was so great that this hapless Baltic country could have sold nearly four times as much. Lithuania has been downgraded by Fitch Ratings three times in the past year, and its gdp is expected to fall 18% this year. One sign: The VIX Index, which measures investor expectation of stock volatility, is back down to the level of October 2007, when shares were near their highs.Īs with junk companies, so with junk countries. The last time the monetary spigot was wide open it led to a credit bubble, a stock bubble, a private equity bubble and a housing bubble-and we all know how that ended. But by pushing rates down everywhere, he has driven investors looking for extra yield to the riskiest paper and allowed them to lever up these bets cheaply. The $2 trillion he has pumped into the economy and his zero interest rate policy may have spared us a second Depression. The sickly Bs are expensive now, with prices up 43% so far this year.Īs for why risky assets are in vogue, look to Fed Chief Ben S.
"There's such a desperation for yield now, you have to wonder if people have learned any lessons" from the crash, says Berwyn Income comanager George Cipolloni, who has loaded up on junk but shunned lower rated issues. Suddenly flush, bond managers are scrambling to find somewhere, anywhere, to put their money to work.
Why? Forget the business and follow the money, specifically the net $20 billion that has flowed into junk bond funds this year. 17 that it was able to sell $675 million, nearly double what it had planned. So why are investors lapping up its bonds? Despite plunging same-store sales and liquidity troubles this summer that stoked rumors of bankruptcy, demand for its B-rated 11.75% bonds due in 2014 was so great on Sept. Blockbuster is approximately where buggy whip manufacturers were exactly a century ago.
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