One of the most important bullish signs has been little remarked upon. The monetary base, which consists of cash in circulation or in banks, had been decelerating during the entire (crises) time the Fed had supposedly been injecting liquidity into the system since last August. Thus, the amount of what economist Milton Friedman called high-powered money to stimulate the economy was decelerating, and so was the economy as the crisis continued. Now, though, the base is exploding as the Fed has finally turned up the liquidity pump. Since just after the GSE (Fannie Mae and Freddie Mac) seizure, the Fed began expanding the monetary base, so far by over $300 billion, an unprecedented increase. It takes a while for all that liquidity to find its way into the system, but find it, it should, and the transmission mechanism is typically through capital markets first. As it does so, the odds are very good credit spreads will begin to decline sharply and equity prices rise.

• Liquidity Risk (ability to find bids on your bonds): If I hold individual names this would be a big one.
• Interest Rate Risk: With fixed income, higher rates usually kills returns for bonds. However, junk bonds typically behave like stocks coming out of recessions.
• Refinancing Risk: Ability for businesses to refinance their borrowings. This one will be acute since there is almost no credit circulating for good companies let alone junk status ones. And in an era of vanishing leverage junk companies will get no financing to roll their debt so defaults will be higher than previous crises.
• Credit Risk: Generally this is a big one. And it is more paramount in this period than historically. We are coming out one of the largest credit bubbles in history, so undoubtedly writing standards for junk bonds in recent years have deteriorated from past years. That means that any historical averages for default and recovery rates will be almost irrelevant. Historical recovery rates averaged around 40%, I think that rate should not be remotely expected in this crises. Furthermore, the highest default rates on record were 15% recorded during the great depression era. Another point to consider is that the default rate is a blended rate across all issues from BBB rated to CCC and non rated issues.