Tuesday, July 8, 2014

Junk Bond Issuance Grows

The Bank of America Merrill Lynch Global High Yield Index began in 1997 and 12 years later, the value of junk bonds in the index reached $1 trillion. In the last four years, another $1 trillion has been added. During 2013, a record $477 billion in junk bonds were issued, and, so far this year, $338 billion in junk bonds have been issued. A major factor that is causing the rapid increase in junk bond issuance is the "reach-for-yield," that is, investors are looking for a yield on debt in the near zero government bond environment.  Additionally, Moody's measure of the the strength of junk bond covenants is the weakest since the company began tracking covenants in 2011.