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Europe's Woes Deflate 14-Month Us Junk Bond Rally

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A rally in U.S. junk bonds is sputtering as widening concern about Europe's debt crisis puts the market on pace for its first monthly loss in 15 months.

Through Wednesday, investors had lost 2.57 percent on junk bonds so far in May, the worst performance since February 2009, when they lost 3.47 percent for the full month, according to Bank of America Merrill Lynch indexes.

Junk bonds fell even further on Thursday, with some Clear Channel Communications bonds down 7 points on the day and dozens of other names off more than 2 points.

The pullback is part of a flight from risky assets of all sorts as Europe's debt problems raise fears the global economic recovery will be derailed. World stocks slid on Thursday, with the S&P 500 index falling into correction territory amid doubts that euro zone leaders will agree on a policy to address the region's debt problems.

"I don't think there's yet a real change of heart about the fundamentals underlying the high-yield market," said Martin Fridson, chief executive of Fridson Investment Advisors in New York.

However, investors are worried that the momentum is turning against the market, "and you don't try to fight the market whether you fundamentally believe it or not," he said.


For now, economic realities are still supportive for many junk-rated U.S. companies. Defaults are falling, revenue has improved and cash on balance sheets was up 33 percent in the first quarter, according to JPMorgan data. The fear, though, is that Europe's fiscal troubles will pressure the banking system, causing a credit squeeze in the United States and impeding the economic rebound here.

"We're not at that point but maybe one or two steps less removed than we were," Fridson said.

So are they now rediscovering that crap could be just be crap rather than a polished turd. If they are junk they are probably junk for a reason.

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Pick a morgage backed security from the Markit ABX.HE index here:



ABX.HE.BBB.07-2 (5th one down - BBB rated subprime CDO).

It lost 99% of its value at one point in Feb 2010.

That's what I call value-add.

Looks like they've all bounced up into April and now they're on the way down again.

Twas just a dead cat.

Edited by AvidFan
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  • 441 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?

      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%

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