Yield-Hungry Investors Gobble Up Junk Bonds

Almost any borrower can sell bonds, no questions asked

After five and a half years of the Federal Reserve keeping short-term interest rates near zero, investors say they have no choice but to seek ever-riskier securities to generate any type of return. That means almost any borrower is able to sell bonds with few questions asked—whether it’s a nation with a history of defaults or a corporation with an ultra-low credit rating. Even Japan’s risk-averse $1.25 trillion Government Pension Investment Fund said it’s considering loosening its practice of only buying investment-grade debt and venturing into junk bonds. “You can stay in overexuberant conditions for a while,” says Fred Senft Jr., director of fixed income and equity research for Key Private Bank. “But when it turns, it will turn quickly and it will turn very ugly.”

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