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Race to Zero in High Yield Credit
The average annual credit loss in high yield bond portfolios was 2.65% between 1992 and 2011. During that same time period, your average yield for taking that credit risk was 10.25% and your average option adjusted spread was 5.7%. Today, that total yield has dropped to 4.96%
- High Yield - The New Risk Free Asset Class
At 4.96% you are picking up 4.04% above a comparable tenor in US treasuries. With a 2.65% average credit loss, you are expecting a 1.39% risk premium for taking on junk credit risk if we experience historical average credit losses. Do not worry though, because volatility has been removed from all asset classes.
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If I repackage and aggregate a bunch of the junk can I get it rerated to AAA?
Exactly.
Modern investment modelling has shown that buying a single diseased cow is very risky, but the risk is cancelled out if you buy the entire herd.
Yield free risk.
Yea, but what's my return if I'm leveraged 20-1???
It is all about Pump n' Dump. Very Bullish!!
Welcome to SurlyTrader! And what a timely article. "High Yield" (junk) at under 5%? There are stocks that yield 5% (yes, OK, with their issues as well).
The stretch for yield has gotten ludicrous with investors accepting under 5% for that much risk. Do they think that there is such low risk of non-payment when the going gets tough?
Crap junk bonds at sub 5% trumps equities. Of course, it's still absurrd.
Oh, and Uncle Warren's full of it.
Depends. What does Kevin Henry think?
Call Mike Milken. Refinance to low yield while raising moar cheap money for Leverage America. Get in there folks. It's dropping to 3.9%. Hurry, hurry. Hubba, Hubba.
central planned world going oh so well till it dont. until food sky rockets we will sit here and take it up the ass and hope the next time i can get a little ky for the next leg down
Couldn't have said it better, but boy is that gonna hurt, even with the ky
Who Cares if There’s a High-Yield Bond Bubble? http://www.investmentcontrarians.com/gold-investments/gold-bullion-trading-hitting-record-levels-chinese-leading-the-pack/2001/
NYSE Holidays 2013NO FEAR!
Ha ha - that's a good one. I once bought $10k of a company run by Jonas Salk (polio vaccine creator) called Immune Response - was told it was headed skyward; no risk. After less than 4 years I was getting brokerage charges on an account that had dwindled into negative territory. I called the schmuck and said, "Hey man - cancel my account, you've bled this one out." Lesson learned. Have done much better since. I would advise anyone who hasn't yet been burned, to wait until they're a little older to try their hand - and to keep their cash a little more cautiously in their truly 'no risk' vehicles.
Race to Zero… now that is a concept to give to the kids..
I heard that the easiest thing to do is become impoverished,
Saved by Zero
http://www.youtube.com/watch?v=JOiZP8FS5Ww
Shite - I never knew The Fixx were on slimeball Geffen Records. Friend of Obama.