Yield Hunters Push Bond Safeguards to the Brink
From CLOs to junk bonds, buyer protections are getting weaker as interest rates plumb new depths.
High-yield debt investors are working without a net.
Photographer: Joe Raedle/Getty Images
“Worrisome.” “Dangerous and aggressive.” “Abuse of documentation.” “Peak greed.”
These are just a few of the ways investors and analysts have described the riskiest corners of the debt markets in the past few days. From the U.S. to Europe, whether in collateralized loan obligations or junk bonds, the feeling that the reach for yield in fixed income is fast approaching a breaking point is becoming too powerful to ignore. It’s perhaps best encapsulated by a quote in the Wall Street Journal from Luca Cazzulani, a senior fixed-income strategist at UniCredit: “Investors are not really interested in safety, they are quite keen on yield.’’