RED FLAG: Junk Bond Yields Below Inflation Rate For First Time Ever Signals Overcrowded Trade?

What could possibly go wrong?

by Jason Burack of Wall St For Main St

Within only 2-3 months after corporate bond and credit markets froze up completely in February and March 2020, Wall St bond salespeople restarted selling (and increasing) massive amounts of junk bonds, leveraged loans and other toxic sausage OTC derivatives.

Now too many hedge funds and family offices are long junk bonds on leverage (probably more than Archegos). But they are not long junk bonds for income or yield but rather for capital gains and betting that the Fed will bail them out if their over leveraged, overcrowded bond trades blow up.

Because lots of hedge fund managers are long junk bonds (using leverage) for capital gains. They are betting that the worst case scenario is that the Fed buys them for 100 cents on the Dollar before they go to zero. Only retail investors are buying junk bonds for yield. Professional money managers are buying junk bonds for capital gains using 8x or more leverage on the trades… What could possibly go wrong? (sarcasm)


Commit to tipping us monthly for our hard work creating high level, thought provoking content that includes interviews with top experts, analysis and short videos about investing and the economy​ or Patreon dot com slash wallstformainst (since YouTube blocks the URLs and makes them appear broken)