Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
A significant portion of high yield bonds (junk bonds) are compromised of energy bonds. The dramatic drop in crude prices have affected oil producer's ability to repay their debt; thus, increasing the risk of default. In addition to that, there is a lack of liquidity in high yield bonds, especially in the energy sector, which means investors will find themselves without the ability to get out in the event of a default.
The size of the high yield bond market is approximately $1.47 Trillion, which represents roughly 15% of all corporate bonds. Some estimates have placed the energy sector component of high yield bonds as high as $500 Billion, which adds a significant risk variable to the entire high yield bond market.
The volatility of this market probably plays a substantial role in determining whether or not to raise short term interest rates. This is a major concern, especially since it is estimated that 29% of high yield bond investors are insurance companies, 13% are mutual funds, and 28% are pension funds.
The price of crude will likely play a major role in the financial health of the entire market. If oil prices don't rise soon, many companies will likely default, which could result in the entire high yield bond market collapsing.
However, if oil prices rise too rapidly, it could also start a recession or at least invoke a panic in the market whereby a massive selloff ensues. The fact that the economy has very little momentum, even in the midst of low oil prices, is very disconcerting. Even worse, the same low interest rate utilized by the federal reserve to promote growth is what contributed to this mess because investors had to take higher risks in order to gain greater returns on their investments.
This means that the Federal Reserve may be powerless to stop this. What can they do?
As I have been saying on here repeatedly, the bond market (especially the "high yield"/junk) is the next big crash. We can revisit the thread within the next couple of years when it happens. Anyone buying this junk is going to wiped out just like the junk mortgage products back in '08. Watch and see.
As I have been saying on here repeatedly, the bond market (especially the "high yield"/junk) is the next big crash. We can revisit the thread within the next couple of years when it happens. Anyone buying this junk is going to wiped out just like the junk mortgage products back in '08. Watch and see.
It appears to be that way; however, I think the energy market is the sector that is struggling the most. If oil prices rebound to a reasonable rate that benefits both consumers and oil producers, I believe the market to be recoverable.
You guys need to stop, your paranoid bubble talk is making me more bullish.
Then you should buy some junk bonds. Load up in the bond market. We can fact check who was correct on the call. I say bonds are the next bubble to pop. Bullish on equities, and very bearish on bonds.
Even more disconcerting news about the present situation in the high yield bond market. There is also the possibility of contagion in markets with less risk exposure.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
