Early last month we asked: "Is The Stage Set For A High Yield Meltdown?" As a reminder, here is how we summarized prevailing HY market conditions:
Periods of QE in the US saw US HY supply surge 50% above normal levels as issuers sought to take advantage of lower borrowing costs and investors clamored for the relatively higher yields they could get by taking on more credit risk. More recently, struggling oil producers have tapped the market in an effort to stave off insolvency as crude prices plummet, leading directly to a situation where outstanding HY energy bonds account for a disproportionate share of all outstanding debt in the space. With rates set to rise later this year, with crude prices likely to stay depressed for the foreseeable future, and with suppressed liquidity in the secondary market for corporate credit poised to bring heightened volatility, the stage may be set for a high yield meltdown.
Now, Carl Icahn is out warning that junk bonds are in fact the biggest threat facing investors today.
"What's even more dangerous than the actual stock market is the high yield market."
"It's ridiculous...I think default rates are going to go up in this market... and the people buy it! The public... I'm going to try to put stuff out and let the public know what they should be aware of because I feel bad for them."
"They're buying the yield and they think 'Oh, bonds are going to go up,' but when they start coming down, there's going to be a great run to the exits and at least in 2008 you had a bit of a safety net with the prop desks at banks, but now with the Volcker rule you can't even depend on that."
Here's the full video: