This article provides interesting insight into the buoyant market for junk bonds. Investors hungry for higher yielding investments have been willing to offer very favorable terms to companies in less than ideal financial condition. This is actually a decent time to be investing in junk bonds as the economy is improving but has likely not peaked, but the trend is one that could easily become excessive. This is one of the major risks of the Fed’s monetary policy, but I can’t blame them because I do believe it is necessary. Investors should really be disciplined and seek out opportunities in which they are being compensated for the risk.
At T&T Capital Management we have had successful investments in Sears high yield bonds which we bought in the mid 70’s that are now trading in the high 80’s. We’ve also successfully invested in the high yield debt of Jefferies, Ceaser’s Entertainment, Pulte Homes, AIG among others. I’d probably wait for yield spreads to widen a bit more before I’d look to buy more.