Wednesday, January 16, 2008

junk bonds market

--At mid-month, risk premiums on speculative-grade bonds have ballooned to 6.66 percentage points over Treasury bonds according to the Merrill Lynch Master II High Yield Index. That's up from 5.92 percentage points at the end of last month and an all-time low of 2.41 percentage points last June. --At this point, yields on junk bonds have zoomed past their historical average of 5.08 percentage points over Treasurys, according to Merrill Lynch. Given their trajectory over the past couple of weeks, they show few signs of stopping. --There is a strong argument that the price of risk in this market has overshot its mark. Bond spreads -- which widen when prices fall -- expand when buyers demand better returns for the risk that some of their holdings may default. But the default rate is still at historic lows. --Several investors agreed that pervasive negative sentiment regarding credit markets is largely to blame for keeping buyers away at current prices.

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