Wall Street will always find avenues to make money regardless of problems with the stock market or other investing strategies. This time the way that some people in Wall Street are capitalizing is through junk bonds. The high-yield bonds are giving investors as much as 10.2 percent in returns.
But as always, by the time you read this the junk bond market will have fallen. The state pensions, mutual funds and individual investors are taking on a lot of risk to get the returns that they are craving for their bond portfolios.
But nowadays, the junk bond market is very different from back in the 1980s. Finance professionals might remember Michael R. Milken who first started issuing these junk bonds to ensure that his investment bank Drexel Burnham Lambert could pay for hostile takeovers.
Today, the situation is not the same as a lot of the yields on the junk bonds are not that high. The average is about 6.6 percent, which is fairly low given the risk of default. But even this risk of default may be nonexistent as companies are now using the debt to do things like refinance their balance sheets as opposed to leveraged buy-outs.
Standard & Poor’s had a report in 2011 that stated that only 2.8 percent of junk bond issuers defaulted and this is good news for investors who want a secure return. It seems like junk bonds are not as risky as they used to be and investors who are looking to make a quick buck may not be too happy with this development.