Jeffrey Cleveland, Justin Ho, Karen Rothman discussed on All Things Considered

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Here on WNYC. This is marketplace, I'm KAI Ryssdal. We talk with some degree of regularity about bonds on this program government bonds, first of all, and they're also important interest rates also corporate bonds debt that companies issue to borrow money to expand an invest, but not all debt is created equal. There are bonds that are super safe, and there are bonds that are less safe, but more remunerative, and that's lice of the corporate bond. World has been showing some signs of trouble. Marketplace's Justin ho has that one corporate bonds are graded by the ratings agencies ratings like a double a triple b Karen Rothman is at John Hancock asset management the credit rating comes from the perceived risk of default bonds that score low are considered junk, the formal phrases high yield. And this is not an insult. It's a wager. Higher return higher risk of default. Rothman says junk bonds are common for companies that tends to carry a lot of debt a good number of bonds are issued by energy companies other. Issuers in the market that are quite large. Telecommunications companies media and technology companies and healthcare companies sprint has been selling. Billions in junk bonds to help build its giant five G network. Del Sol junk bonds to finance acquisition in two thousand sixteen junk bonds are part of a normal growing economy. But when there are signs the economy is slowing down that could mean that default rates in in the corporate space will pick up. That's Jeffrey Cleveland chief economist at paid in regal. He says that could explain why investors withdrew a record amount from junk bond funds last year. The volatile stock market isn't helping investors appetite for risk either. Cleveland says junk bonds are a barometer for economic slowdowns the times when you see the worst performance in high yield are around the time of a recession. So if that's why money is leaving the space and that is that is more worrisome phenomenon. Investors aren't the only ones shunning junk bonds companies have been issuing them. Because those high yields are. Expensive to pay out. There wasn't a single junk bond sale in December. But there are signs of recovery. In the junk bond market for one companies are selling them. Again, this month Pucci per squall is managing director at pan co Prisma if they wanna expand or do you want to buy another company at some point some of the companies that are going to be pushed by the realities of their business to come to the hail market. But there are still concerns. Pass quality says right now investors are more worried about companies like General Electric, giant's beleaguered conglomerates whose corporate bonds having given a junk rating yet the question with certain companies like GE where to have a lot of debt on their balance sheet and their earnings, you know, are presumably on one trajectory, and that's downwards the are at risk of becoming downgraded to yield right now. There's roughly a trillion dollars kind of barely passing that debt gets downgraded. It would flood the junk bond market making their values fall, even lower. Lower in their yields even higher in New York. I'm Justin ho for marketplace. President Trump signed the.

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