Crazy For Junk – US-FOREX.US
Here’s more evidence of risk-taking’s rebirth: Sales of the riskiest, speculative debt has already surpassed last year’s total. Corporations have sold 88 billion in junk bonds worldwide, up from 49.5 billion in 2008, according to data provider Dealogic. The 4.2 billion bond sale by Canadian miner Teck Resources Limited
in May is the year’s largest.Telecommunication companies have benefited the most, accounting for nearly 20% of the junk bonds sold. Italian mobile-phone company Wind Telecomunicazioni SpA’s 3.8 billion issue in July is the largest from the sector thus far. More hit the market in the past week. Wireless communication company NII Holdings
is currently marketing 500 million in notes; satellite television provider Dish Network
sold 1 billion in notes on Thursday; and Sirius XM Radio
announced an offering of 250 million in notes to repay debts owed to Liberty Media Corp.
How to explain the rush of new bond sales? Some credit goes to retail investors piling their savings into fixed-income mutual funds. Bond managers say the easiest and cheapest way to use that cash is by buying newly issued bonds from underwriting banks. The alternative can be costly. Putting a large amount of money to work in the secondary market by bidding on already trading notes could allow other bond traders to gouge the buyer. Bond funds received 11.5 billion in the seven days to August 5, according to the most recent figures from the Investment Company Institute. That’s up from 8.6 billion in the previous week. Of the 11.5 billion, 9.3 billion went to taxable funds, which hold corporate and Treasury bonds. Jeff Tjornehoj, research manager at mutual fund tracker Lipper, believes the popularity of fixed-income funds reflects a change in retail investors’ thinking. After getting burned on their stock holdings last year, people have come to see bonds as less volatile and stomach churning than stocks. The change in sentiment creates an opportunity for mutual funds to start new funds. Vanguard, for instance, unveiled seven bond index funds this week .
Low rates for Treasurys have helped, too, by making higher-paying corporate bonds more attractive. But yields on longer-dated government bonds are creeping higher as the Treasury continues to sell bonds to finance spending and the Federal Reserve empties out the 300 billion purse it used to purchase Treasurys. On Wednesday, a 23 billion auction of benchmark 10-year notes sold at a 3.7% yield. That’s much higher than the 2% reached in March but, apart from the 3.66% average rate in 2008, is still well below the annual average over the last 46 years, according to Federal Reserve data.
The 10-year note rose on Thursday to yield 3.59% after a record 15 billion auction of 30-year Treasury bonds turned out better than expected.