Thursday, May 25, 2006

Some can't wait for this day to come

The buyout boom has fueled a high yield market that may be getting a little frothy. That's been said time and time again. New paper issued well below investment grade is being issued at relatively low interest rates because people are chasing yield and because the risk spread is so marginalized given the low global interest rate environment. The possibility of massive defaults is scary as these blow-ups can roil the markets (Worldcom, Argentina's defaults several years ago). But with every bust, there is someone who sees it as a boom. Distressed bond traders can't wait for the day when the market corrects itself and some of these bonds go bust. The theory is that one blow-up can correct the high yield market and make the risk parameters and spread more aligned with historical levels.

Check out the interesting Bloomberg article here.


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