Corporate borrowers with nary a chance of repaying debt are taking advantage of record low interest rates to sell junk bonds:
U.S. companies issued risky "junk" bonds at a record clip this week, taking advantage of keen investor appetite for returns amid declining interest rates and tepid stock markets.
The borrowing binge comes as the Federal Reserve keeps interest rates near zero and yields on U.S. government debt are near record lows. Those low rates have spread across a variety of markets, making it cheaper for companies with low credit ratings to borrow from investors.
Fixed-income investors are so desperate for yield that they're willing to clear the junk bond market of any and all inventory. The last time I recall seeing stories like this was Spring 2007, just months before the first panic attacks started hitting credit markets. We can thank the Fed's gamble on QE2 for returning us to this precipice. Not everyone at the Fed is happy to gamble with America's solvency:
The Federal Reserve is undertaking a "dangerous gamble" by keeping rates at near zero for so long, and must start raising rates or risk damaging the nascent U.S. recovery, a top Federal Reserve official said on Friday.
Helicopter Ben will stay the course despite dissenters like Thomas Hoenig. China isn't waiting for any further quantitative easing and is diversifying away from dollar holdings
in advance of more Fed purchases of debt. If only American investors could do the same. Alas, it's too late for many Baby Boomers to diversify, and what little they have left in U.S. assets won't see them through their retirement years
America's hard times will last a long time. Prepare for long, lean years by spending less and saving more.