Think about this: a junk bond is basically debt issued by a company with financials so risky that analysts expect there’s a good chance the company won’t pay its debts.
Hell, the company might not even be in business by the time the debt matures.
And yet, despite these substantial risks, investors are willing to loan money to these companies… at NEGATIVE rates of return.
Seriously?? You take all that risk and then GUARANTEE that you’ll lose money.
In other words, as John Rubino recently noted, investors are now extrapolating falling interest rates into the future and playing junk bonds for the capital gains they’ll generate when their future borrowing costs go down. This is one of those sentiment shifts that financial historians will single out for special attention when sifting through the rubble of the coming crash.
Read the entire article