Goldman Sachs, Morgan Stanley Split on Junk as Prices Soar: Credit Markets
By John Detrixhe – Sep 23, 2010 5:59 AM ET
Morgan Stanley says investors should buy the lowest-rated corporate debt, while Goldman Sachs Group Inc. says stay away, underscoring the dilemma faced by investors as junk-bond prices rise to the highest since 2007. …
Bondholders faced with near-zero interest rates and record- low yields are turning to higher-risk notes to boost returns, betting growth will be strong enough to keep defaults in check. Investors poured $480.2 billion into mutual funds that focus on debt in the two years ended June 30, more than went into stock funds during the Internet bubble, according to the Washington- based Investment Company Institute. That has helped companies sell a record amount of junk bonds in 2010 with three months still left in the year. …
Prices of U.S. corporate bonds rated below Baa3 by Moody’s Investors Service and less than BBB- by Standard & Poor’s closed at an average of 100.4 cents on the dollar yesterday, up from 55 cents in December 2008, according to Bank of America Merrill Lynch index data.
The lowest-ranked debt, rated CCC and lower, has done even better, rising to 89.2 cents from 31.6 cents. The securities have returned 3 percent this month, with relative yields averaging 10.9 percentage points more than Treasuries.