Propelled by the rocket fuel of junk bonds
, Carr achieved yields 25 to 30 percent greater than many of his well-known competitors and, in turn, offered those to policyholders.
Part of Fairfield's rapid growth in the late 1970s and 1980s came through junk bond
financing provided by Mike Milken and Drexel Burnham Lambert.
Recognizing changes in the underlying value of investments, Lincoln has increased its holdings of Treasury bonds and AAA securities from 17 percent to 43 percent of its portfolio since 1987 and reduced its junk bond
Milken discovered, about 10 years ago, that these so-called "junk bonds
" really weren't all that risky - that the extra return paid out by junk bonds
far exceeded the likely losses from a default.
Third Avenue Management specializes in risky bonds, and its Focused Credit Fund was heavily concentrated in junk bonds
, subordinated debt and unrated securities of distressed companies.
are risky investments, but have speculative appeal because they offer much higher yields than safer bonds.
Moody's has downgraded three nationalised Spanish banking groups, sending their debt deeper into junk bond
territory on fears that private investors may get burned in case of trouble.
While disruptions in global markets in 1998 raised risk premiums on junk bonds
and bank loans and threatened a seizing-up in financial markets, ultimately they did not derail the flow of credit, especially to smaller businesses.
Instead, "[i]n the junk bond
files that we have examined," wrote Professors Alan Shapiro and Mark Weinstein of the University of Southern California in a study made for San Francisco, "the only broker dealt with is Drexel Burnham Lambert"
But the last decade saw an explosion of new, complex techniques and security-like investments such as options, futures, zero-coupon bonds, asset-backed securities and junk bonds
22 if it cannot buy back at a discount $240 million in junk bonds
used to buy the papers.
Concerns Regarding Junk Bond
Market Exceed 'Credit Crunch' Worries
It sure seems like it, because junk bond
issuance soared to $26 billion in November more than double October's levels, according to Bloomberg data.
Red flags, including ugliness in the junk bond
market, options activity and the ease with which support levels have been broken suggest more selling ahead.
Institutional investors typically grab the lion's share of public bonds, but does it make sense for casual investors to help float a $15 billion loan to a nearly bankrupt state whose credit has been downgraded by Wall Street to near junk bond