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Junk Bonds Are Going To Tell Us Where The Stock Market Is Heading In 2015

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Dominoes - Public DomainDo you want to know if the stock market is going to crash next year?  Just keep an eye on junk bonds.  Prior to the horrific collapse of stocks in 2008, high yield debt collapsed first.  And as you will see below, high yield debt is starting to crash again.  The primary reason for this is the price of oil.  The energy sector accounts for approximately 15 to 20 percent of the entire junk bond market, and those energy bonds are taking a tremendous beating right now.  This panic in energy bonds is infecting the broader high yield debt market, and investors have been pulling money out at a frightening pace.  And as I have written about previously, almost every single time junk bonds decline substantially, stocks end up following suit.  So don’t be fooled by the fact that some comforting words from Janet Yellen caused stock prices to jump over the past couple of days.  If you really want to know where the stock market is heading in 2015, keep a close eye on the market for high yield debt.

If you are not familiar with junk bonds, the concept is actually very simple.  Corporations that do not have high credit ratings typically have to pay higher interest rates to borrow money.  The following is how USA Today describes these bonds…

High-yield bonds are long-term IOUs issued by companies with shaky credit ratings. Just like credit card users, companies with poor credit must pay higher interest rates on loans than those with gold-plated credit histories.

But in recent years, interest rates on junk bonds have gone down to ridiculously low levels.  This is another bubble that was created by Federal Reserve policies, and it is a colossal disaster waiting to happen.  And unfortunately, there are already signs that this bubble is now beginning to burst

Back in June, the average junk bond yield was 3.90 percentage points higher than Treasury securities. The average energy junk bond yielded 3.91 percentage points higher than Treasuries, Lonski says.

That spread has widened to 5.08 percentage points for junk bonds vs. 7.86 percentage points for energy bonds — an indication of how worried investors are about default, particularly for small, highly indebted companies in the fracking business.

The reason why so many analysts are becoming extremely concerned about this shift in junk bonds is because we also saw this happen just before the great stock market crash of 2008.  In the chart below, you can see how yields on junk bonds started to absolutely skyrocket in September of that year…

High Yield Debt 2008

Of course we have not seen a move of that magnitude quite yet this year, but without a doubt yields have been spiking.  The next chart that I want to share is of this year.  As you can see, the movement over the past month or so has been quite substantial…

High Yield Debt 2014

And of course I am far from the only one that is watching this.  In fact, there are some sharks on Wall Street that plan to make an absolute boatload of cash as high yield bonds crash.

One of them is Josh Birnbaum.  He correctly made a giant bet against subprime mortgages in 2007, and now he is making a giant bet against junk bonds

When Josh Birnbaum was at Goldman Sachs in 2007, he made a huge bet against subprime mortgages.

Now he’s betting against something else: high-yield bonds.

From The Wall Street Journal:

Joshua Birnbaum, the ex-Goldman Sachs Group Inc. trader who made bets against subprime mortgages during the financial crisis, now has more than $2 billion in wagers against high-yield bonds at his Tilden Park Capital Management LP hedge-fund firm, according to investor documents.

Could you imagine betting 2 billion dollars on anything?

If he is right, he is going to make an incredible amount of money.

And I have a feeling that he will be.  As a recent New American article detailed, there is already panic in the air…

It’s a mania, said Tim Gramatovich of Peritus Asset Management who oversees a bond portfolio of $800 million: “Anything that becomes a mania — ends badly. And this is a mania.”

Bill Gross, who used to run PIMCO’s gigantic bond portfolio and now advises the Janus Capital Group, explained that “there’s very little liquidity” in junk bonds. This is the language a bond fund manager uses to tell people that no one is buying, everyone is selling. Gross added: “Everyone is trying to squeeze through a very small door.”

Bonds issued by individual energy developers have gotten hammered. For instance, Energy XXI, an oil and gas producer, issued more than $2 billion in bonds just in the last four years and, up until a couple of weeks ago, they were selling at 100 cents on the dollar. On Friday buyers were offering just 64 cents. Midstates Petroleum’s $700 million in bonds — rated “junk” by both Moody’s and Standard and Poor’s — are selling at 54 cents on the dollar, if buyers can be found.

So is there anything that could stop junk bonds from crashing?

Yes, if the price of oil goes back up to 80 dollars or more a barrel that would go a long way to settling things back down.

Unfortunately, many analysts are convinced that the price of oil is going to head even lower instead…

“We’re continuing to search for a bottom, and might even see another significant drop before the year-end,” said Gene McGillian, an analyst at Tradition Energy in Stamford, Connecticut.

As I write this, the price of U.S. oil has fallen $1.69 today to $54.78.

If the price of oil stays this low, junk bonds are going to keep crashing.

If junk bonds keep crashing, the stock market is almost certainly going to follow.

For additional reading on this, please see my previous article entitled “‘Near Perfect’ Indicator That Precedes Almost Every Stock Market Correction Is Flashing A Warning Signal“.

But just like in the years leading up to the crash of 2008, there are all kinds of naysayers proclaiming that a collapse will never happen.

Even though our financial problems and our underlying economic fundamentals have gotten much worse since the last crisis, they are absolutely convinced that things are somehow going to be different this time.

In the end, a lot of those skeptics are going to lose an enormous amount of money when the dominoes start falling.

  • GSOB

    Don’t worry.

    We’ll start business with Cuba soon.

    That’ll be invigorating.

  • K

    All I can say, it will come earlier, rather than later in 2015.

    • T.

      The great “Unraveling” has already begun. Junk bonds are “Paper” instruments. All paper instruments are connected together like a “Daisy Chain”. Junk bonds, derivatives, stocks and currencies ($) are all connected. The junk bond bubble has been pricked – The collapse of all things paper will follow in time (2015).

  • old fart

    Ah yes Cuba, After NAFTA by Clinton we lost most of our industry and now we are allowing Cuba into the game, If it happens we will see more medium sized business go Off shore To Cuba for the low cost labor and the Cuban Government will have all sorts of Bennies to offer them. Zero is screwing us any way he can while our supposedly representatives sit on their thumbs and fill their pockets with bribes ,, Yep we have the gov that we deserve.

    • K

      Interesting you should mention Cuba. Do you not find the timing interesting? We are putting tanks in Eastern Europe, and now there is talk of moving nukes into Eastern Europe. Normally I would expect Russia to counter. By putting ballistic missile subs in Cuban waters. But if the relationship between the U.S. and Cuba is warming. Cuba is much less likely to allow this. Just something to make you say hmmmmm.

      • Mike Smithy

        K, perhaps I am wrong, but I think you are giving President Zero and his staff too much credit. I am not convinced that this crew in the White House knows or cares to know anything about military strategy.

        • K

          Mike the president is just a puppet, he does as he is told. So no I do not give him any credit. But the ones working behind the scenes. are evil, not dumb. This chess game was put in motion quite some time ago. The problem with this game. They are playing with human lives, perhaps many million of them.

          • http://www.southerncrossxray.com americalsgt

            or it’s all about Jay Z’s request for Obama to get his Cohibas. Of course I’m being sarcastic, but after gun running, made up video, IRS infiltrating etc, the cigars could be the issue. Watch to see if Jazzy and Bouncy do a concert for the Obama’s. Then we’ll know for sure.

    • alan

      I agree 100%, the timing is a bit suspicious!
      Cuba could be the new Vegas. What happens in Cuba stays locked up with you in Cuba.

  • Tim

    The Dow Jones Index closed up over 400 points today! That is absolutely absurd.

    • Mike Smithy

      The banksters want their year end bonus and the algos will make sure they get it. The rally yesterday and today is just noise and just confirms that Wall Street is in no way pegged to the reality of Main Street. Look out below in 2015.

      • FortuneSeek3rz

        Janet Yellen struck the dovish tone regarding interest rates and that’s all Wall Street needs to hear. While the markets are overvalued they are nowhere near the PE ratios of the NASDAQ companies during the dot-com bubble. Still plenty of room to rally for 2015 as I don’t think Yellen has any intention of raising rates during her tenure.

        • Mike Smithy

          Despite P/E ratio comparisons to the Dot.Com bubble, the National Debt has more than tripled since 2000, the bond market is on shaky ground and nominal wages are way down. It’s now a game of the greater fool and finding bag holders for the pump and dump. Allegedly, many of the big individual investors have divested themselves of large holdings of equities and have shifted their focus to wealth preservation and away from growth. All I know is this isn’t going to end well for the middle class.

    • MichaelfromTheEconomicCollapse

      You are right about that Tim.

      And it is lulling people into a false sense of security. Instead of relaxing, I hope that people that visit this website will take the opportunity to prepare instead…

      http://endoftheamericandream.com/archives/get-prepared-122-of-the-best-prepper-websites-on-the-internet

      Michael

      • T.

        Yes. People need to sense the lateness of the hour and begin to make some preparations now for the calamitous economic down turn arriving in 2015. All will be affected – Those who made NO preps for this economic event will be hurt the most. This next down turn will be much, much worse than 2008. Big events are now hitting at a faster and faster pace and will accelerate even more as we move into and through 2015.

      • http://ttstblog.blogspot.Com/ Really20

        Michael, I notice that you rail against “raving socialists” in some of your posts on your other blogs. The Democrats and Republicans are hardly socialists in any sense of the word. At the end of the day they believe in control over the means of production by corporate shareholders on Wall Street, people who (as agreed by those on both the genuine left and genuine right) produce no true value of their own. In order to cover this up they have produced a debt-backed “American dream”.

        • ScrewedBlued&Tattoed

          Here is a piece of the “dream”.
          “I have been in default of loans due simply to the fact I can no longer afford them. I have borrowed $49,000 and have paid $52,635 in garnishment and tax offset. UsFunds, Sallie Mae, and Pioneer Credit say I still owe $181,700. That means the money they have taken has never been applied to the principle which I thought was supposed to alleviate the debt. What interest rate turns 49k into 181k after 50k was already paid by the victim? I am wondering why this exhorbent interest is tolerated and upheld.
          It is unconstitutional”.

    • Mondobeyondo

      It is absurd, and totally unrealistic. Wall Street is living in an alternate universe from the rest of us.

      • Tim

        Absolutely!

  • Paul

    In times of rampant corruption I thought it was appropriate to revise the 1984 song “Feed the World” by Band Aid. This epitomizes the mindset of the banksters.
    It’s Bailout time, there’s no need to be afraid
    At Bailout time, we let in money and we banish equality
    And in our world of plenty we spread a smile of joy
    Throw your tentacles around the world at Bailout time
    But say a prayer, Pray for the other funds
    At Bailout time it’s hard, but when you’re having fun
    There’s a world outside your window
    And it’s a world of dread and fear
    Where the only water flowing
    Is the bitter sting of tears
    And the Bailout bells that ring there are the clanging chimes of doom
    Well tonight thank God it’s them instead of you
    And there won’t be savings in Middle-Class America this Bailout time
    The greatest gift they’ll get this year is life
    Where wealth never grows
    No retirement nor wages flow
    Do they know it’s Bailout time at all?
    Here’s to you
    Raise a glass for stolen funds.
    Spare no thoughts this yuletide for the deprived
    The tables won’t be turned so you will survive.
    Here’s to them
    Underneath that Bailout gun
    You ain’t gotta feel guilt just euphoria
    Give a little kick to the helpless
    Do they know it’s Bailout time at all?
    Fleece the world
    Fleece the world
    Fleece the world
    Fleece the world
    Fleece the world
    Let them know it’s bailout time!
    Fleece the world
    Fleece the world

    Let them know it’s bailout time!

    • Donald Reid

      It was the great American philosopher, Robert Heinlein, who reminded us that people who present their own poetry in public probably have other nasty habits as well.

      • Paul

        Donald,
        I am devoted to the Middle Class of America. Also I am sick and tired of the rampant corruption. The elites are enriching themselves at the expense of the middle class.
        My nasty habit is feeling rage on a daily basis when I see a record percentage of children of America that are homeless, the mainstream media lying about a false economic recovery, a record percentage of Americans living paycheck to paycheck, one in five Americans on some type of Psychotropic drug…. I can go on and on.
        America is FUBAR. I use poetry to express my views and feelings. Poetry helps inspire me and think of ways to address social and economic issues as well.
        So perhaps you might think I am a loser because I present my own poetry in public. The welfare of the middle class transcends what you and others may think of me.
        My cause is helping to revive the middle class. I have prepared a Power-point presentation that documents issues plaguing America today and ideas for resolving these problems.

    • falseflag

      Will Sting and Bono sing on this new version?

  • rat28

    With low interest and low oil price, the bull run will continue throughout 2015 .. DJ up 700 points in 48 hours is a good indicator!

  • James Handaja

    Thanks for the advice, Michael…I think I should inform my mom to take her money out of S&P 500…

  • Hot Rain

    I don’t know about the bonds. But hear this, my Russian friend says that Putin & Co have laid out their fiscal plans for 2015 -2017. In those plans, OIL IS $300 A BARREL.

    • Mike Smithy

      Perhaps Russia will use Iran as a proxy to conduct a preemptive strike targeting Saudi oil production capabilities.

      • Priszilla

        No need.
        Right now the UK oil industry and related services goes bust. The Scottish are happy they didn’t vote for independence.
        This will reduce supply next year when the current contracts run out.
        If you live in Scotland and work in that industry you better have a small low energy house to save as many costs as possible when your income breaks away.

      • oscar ollie

        That’s actually a very good plan for the bankers. Russia is blamed for the collapse and is now the enemy. As Priszilla said, it’s probably a good thing Scotland didn’t vote yes in September. Alex Salmond would be bricking it right now.

      • retired22

        You have the deal backwards.Saudi Arabia & it’s Sunni Allies are attempting to bankrupt Iran & stop it from going nuclear!

        • http://ttstblog.blogspot.Com/ Really20

          A sensible US foreign policy would first, and foremost, cut off support to the Gulf monarchies and begin positive engagement with Iran, in exchange for concessions like an end to its death penalty. Iran, for all its faults, has more religious and political freedom than all of the Gulf states put together.

          • retired22

            Yeah?…..who told you?
            Saudi Arabia may be a lousy dictatorship but it has one thing over it’s rival Iran.The Saudi’s are sane,the Iranians,not so much!

    • Bobloblaw67

      How would your Russian friend know?

  • David Hammond

    Anyone remember that snake oil salesman of a preacher Lindsay Williams? He was always claiming on the airwaves how his oil producing “CEO friends” were giving him inside information that oil would be 150+ dollars a barrel and they were upset at Obama…what a false prophet…how is he going to continue to sell his $100 DVDs now?

    • T.

      When the dollar collapses in 2015 – There is no telling at this time WHAT we will be paying for gas and oil by end of next year and beyond. Oil, gas, bread, butter – Everything will be hugely more expensive when the $ collapses. BTW the whole world and the Banksters all want to bring down the $ – It will be brought down, so Prepare.

      • Bobloblaw67

        I’ve been hearing for years now that the $$$ will collapse. Instead it has only gotten stronger.

  • Raj

    Fed is ‘Considerably patient’ for the patient to die.

  • goldminer

    People are going to call this “The great Crash of 2014.”
    Its starting folks. Actually its already happened. Oil prices have crashed and show no sign of bottoming out. Energy is 100 percent responsible for the growth in our GDP. Without energy GDP is way negative.
    If you haven’t got ready for this by now its almost too late. If you are in the market get out now while you still can. Or at least take profits . Only leave money in you can afford to loose. I would not keep large sums of money in one bank either. Spread it around. Credit unions are a good choice. Too big to fail= stripping your wealth No more tax payer bailouts. The banks will simply take the money they need out of your account
    The feces has hit the rotary oscillator. Not long till panic sets in.

  • Mustard Seed

    Our whole world has been mislead. So much of what we thought was good led us to this point. All the “improvements” in education, investment, industry, trade, medicine, politics…were we really thinking about sustainability? Maybe not. Maybe Gordon Gecko was wrong…greed isn’t good. Greed destroys from the inside out. Everything that has been corrupted is dying. More and more people are recognizing what is happening, and people are starting to change. They are recognizing the need to stop treating symptoms and fix what is wrong. We are slowly turning our minds to sustainability and wholesomeness. People are growing weary from all the greed and selfishness. They want healing. We may yet see something healthy grow out of the compost pile of rotted greed.

  • Mondobeyondo

    I lost my job today. Amazon fired me. I’m hurt. Depressed.

    But this is not going to be about me. That would be selfish on my part. Gotta stay on topic, if I can.
    ——————————–
    We are SO being set up for a collapse.
    We have learned nothing since 2008. Nothing.

    I haven’t checked the Baltic Dry Index in a long time, but my guess is that it’s not looking good. The dollar index is looking strong. Good news for the dollar (short term, of course.) Gold and silver are down, which is a great sign to stock up on those commodities.

    I have to go. The search for (hopefully more permanent) employment commences…

    • Joel

      Courage Mondo…

      Difficult to say useful things to someone who has lost something important, whether it is a job or even more. In any case, you will find another job. Courage in your search.

      Remember, behind cloudy skies the Sun continues to shine just waiting is moment to reappear…

      Cheers

    • T.

      Chin up my Brother – The Lord sees you and will help you. God bless

    • http://www.mindbodygreen.com Kim

      I’m sorry. Keep positive. Don’t despair.

    • Paul

      Sorry to hear that Mondobeyondo

  • Mondobeyondo

    How to Get Through Being Fired:

    The same way people get through Hurricane Katrina. And Hurricane Andrew. And Hurricane Camille.

    You pick up the pieces, and move forward. “And continue to live in a hurricane zone”, you cynically say.

    Well, yes. For some people, I suppose that’s true. Beachfront property is quite beautiful. Anyway, there is a message, sort of, in all this. Things are about to get really bad in this nation economically, and otherwise. Are you ready? When the Cat 5 hurricane hits, are you going to be blown away? I hope not.

  • DJohn1

    The problem I have with oil going down so far is that it is an old trick by Standard Oil.
    They often moved into a town with a gas station. They lowered the price of gasoline to the point that they drove all the competition out of business. Then they attached a true price with profit to their station.
    It angered the people in these towns at the time. Sherman Anti-trust Act was born. Standard Oil was broken up into 10 smaller companies much to the delight of the owners. They made a lot of profit from that one law that broke their company up. The Rockerfellers were the guilty party then. They don’t look broke to me.
    The difference between then and now is that the oil companies have moved out of the jurisdiction of the U.S. Court system.
    So if they do business locally, are they subject to our laws? Apparently not. Or Attorneys General in all the states would be making a move against them under the still valid rules of Sherman Anti-Trust.
    Not that Sherman Anti-Trust laws apply. I am not sure that they do. It appears that our lawmakers need to grow something in order for them to buck the powerful oil companies in the congress. Do not see that happening anywhere soon.
    So if the laws only apply to us and not to them what should we do?
    I suggest we need to do away with antique laws that put our companies at a disadvange to their companies that are international.
    Japan makes better cars than us. Why? Because they make them in Japan where antitrust does not exist. So our people are shackled with an antique law that doesn’t allow them to merge or to even coop new engineering to make a car better than the Japanese or the Koreans?
    Both countries actively help their local industry in this regards.
    While our industry is obeying antique laws that costs a lot of money. Doesn’t seem fair to me.
    To change those laws into something that would allow our companies fair practices to compete with everyone else we would have to have the Congress rewrite the game rules of business in this country.
    Either that or enforce the law and not allow any of these competitors in the country to do business.

  • mi.

    Michael, you’re doing a good job. Greetings from Poland.

  • Mondobeyondo

    Don’t be the least bit surprised if all of this doesn’t end well.

    Because it WON’T end well.

    Oil and other commodities are falling. The debt is skyrocketing.
    Add some eggnog and a pinch of sugar, Stir lightly.
    Pour in some vanilla extract.
    Add ice, Leonardo Di Caprio and Kate Winslet… and you’ve got yourself a Titanic on the rocks.

  • Mondobeyondo

    Don’t expect the President, or anyone else in government, to do much about the present dilemma, either.

    They represent the Lollipop Guild.
    And on behalf of the Lollipop Guild, they’d like to welcome you to Munchkin Land.

    Or worse.

  • rentslave

    Will this have a large effect on the munis as well?In 2008,they dropped about 18 per cent by Mar.2009,but that was the time of the bailout.

  • Priszilla

    Isn’t it just junk?

  • alan

    You know they will watch the stawk market like a hawk. If anyone sneezes they will punch the print button.

    Things seem to be heating overseas a lot lately. I think that’s where we will be able to witness the economic carnage a little better.

  • Mondobeyondo

    There are no current indicators that I’ve seen so far that offer anything in the way of good news, in the short term. The bond market – well, that’s discussed in the article. The Baltic Dry Index? Not good. The stock market? Looks good, How about adjusting those mirrors and adding a bit more smoke? Because that’s exactly what it is.
    —————-
    A young boy was walking along a beach, and discovers a golden lamp sitting in the sand. He kicks it. A genie escapes, and tells him, “Why did you do that? I would have granted you 3 wishes, but since you kicked me in the keister, I won’t grant you anything!”

    The young boy says, “Genie? What did I do? Did I rub you the wrong way?”

    (Dedicated to the late Robin Williams.)

  • Priszilla

    China gets 60% of GDP from infrastructure investment. In 2007 they started the first high speed train. Now they have the longest high speed train network in the world. And they build everything from rails to rail cars by themselves. And with a frequency of 1 train every 10 minutes they need a lot of trains.
    This will also save them airports and planes.
    But now they build planes as well.
    That’s a lot of jobs.
    They need to create 8 million new jobs each year because 8 million people retire and 16 million leave school.
    Building a few ghost towns is a very small problem.

    • http://ttstblog.blogspot.Com/ Really20

      But do remember that the Chinese economy is inextricably connected to that of the United States. A collapse in US financial markets and the debt-backed consumption they enable will lead to a collapse in transatlantic trade in the export goods that have until recently enriched the country.

      • Priszilla

        I’m not advocating collapse but job creation. If America would have had invsted all the money consumed in wars of the last 20 years in America. You’d have zero unemployment, the best transportation in the world, be almost independent from foreign oil

  • alan

    I think if we have another one of those “we didn’t see that coming” events it will be blamed on hackers. It seems the new hotness is hackers did it. And where do hackers come from, well evil countries like North Korea, Iran and Russia, that’s what the state run media says.
    I wonder if the FDIC covers losses due to hacking?

  • WolfThom

    Michael Hudson: Neoliberalism is Junk Economy – against neoliberal Free trade and against Monetarism of Milton Friedman

    http://michael-hudson.com/

    Escaping the dollar | Michael Hudson

    Escaping the dollar | Michael Hudson
    More at The Real News Is the New BRICS Bank a Challenge to US Global Financial Power? Michael Hudson and Leo Panitch discuss and debate the sign…Auf michael-hudson.com anzeigenVorschau nach Yahoo
    http://michael-hudson.com/2014/07/escaping-the-dollar/

  • Rocky

    With low oil prices at the pump, there will be a large move in capital from the rich to the low and middle class,
    translating to a slight stock market revaluation of wealth from the ultra rich to the rest of us. This is money that is more apt to be spread more evenly throughout the entire economy, and with the multiplier effect will be a good thing for America, and not just Wall Street.

  • Bobloblaw67

    What would you expect from a blog called “The Economic Collapse”

  • Sophia

    It has been over for a very long time and all illusion of BS. The devil has a nice way of playing in his playground or more less, man does it to himself and the illusion of money and turns to greed and more greedy. Just does not last forever and now we will all suffer the consequences. As Ayr Rand stated You can hide from reality, but we can never hide from the consequences of reality. You can only kick the can so far.

  • Sophia

    The market is in a bubble and the market should be around 12,000 to maybe 13,000. Higher it climbs and the faster it will fall. Many will lose out not the poor or the lower middle class or even the middle middle class. It will be very interesting. Evenutally, the 1% will have all the money. The oil is controlled and the seeds of our foods are controlled as well. Hello is anyone listening and hearing what is happening.

  • Sophia

    Are we in the last days for this society? Is one man going to rise and control the world Antichrist? It has been predicted? Is reality going to sent in for majority of the people in America. America’s are going to have the biggest wake up call in the face of history. We had it so good. One things we allowed our freedoms and liberties to be pulled out under our feet. Why, many people forgot or did not know our history. The people who know our history will never allow this to happen and those are the people who will fight for this country. It all about who we are as nation. Eventually, we will go back to the way nature intended too. Sometimes, our technology has really hurt us, instead of helping us. Not all of it but like anything else; anything can be abused.

  • Robin

    About the Junk Bond
    From its technical viewpoint, it is just the same with a regular bond. It’s an IOU (I owe you) from an organization or a corporation that states with the principal, maturity date and the interest that it will pay on the money that is borrowed.
    A bond varies because of its issuer’s credit quality. They are characterized based on their credit quality, and with regards to that, bonds can fall either with these two categories:

    Investment Grade
    These type of junk bonds are being issued by low up to moderate risk lenders. It may not guarantee a much higher returns, but a smaller risk is guaranteed by these when it comes to interest payment.

    Junk Bonds
    It’s the bond that pays a much higher yields on all of its bond holders because the borrowers have no choice at all.

    Even though these junk bonds offer a high yields in return, this also offers a higher risk. With regards to this, junk bonds falls down in two categories:

    Fallen Angels
    It’s a bond having a poor rating on credits quality.

    Rising Stars

    It’s the opposite of the latter one, it may be a junk bond that’s going on its way on being an investment quality.

    Who can buy these junks?

    If you are interested in buying junk bonds as you investment, it’s necessary for you to know a lot more things about this type of investment because entering in this type of transaction requires high level of degree when it comes to analytical skills especially the knowledge on specialized credit. If you don’t have enough of that, a high possibility of loss is an assurance.

    How to invest with this?
    There are some ways to invest with this like direct buying from a specific company or by investing in mutual funds that are purchasing different bonds from different companies that seems to be the investors best bet when entering this transaction without a lot more experience on these area. Another important thing to remember is when choosing for your fund, you must consult for the manager to see their records in the past few years. When you find out that there is a consistency on their company regarding with their great performance, then that’s the time for you to consider investing with them.

    Despite of their name “junk bonds”, they can be a very valuable type of investment for a strategic and knowledgeable investors. This type of investment that others don’t want, can be some others biggest asset to gain profit. It’s because there are times that the outcomes of investment depends on the proper handling and enough knowledge of the investors.

    If you want to learn more about this and other topics. Follow this link to learn more: Value Investing Like the Legends – Build Your Cash Machine

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