We’re in a Junk Bubble

The 1st Q was a boomer for junk. The best ever – by a long shot.

U.S. Leveraged lending reached a quarterly record in 1Q13

  • Leveraged institutional lending hit all time $190 billion record in 1Q13
  • CLO issuance topped $26 billion in 1Q
  • U.S. leveraged loan issuance reached a quarterly record in 1Q13, at $286.6 billion, beating 4Q12′s prior $232.82 billion record, according to Thomson Reuters LPC.

The big numbers were the result of a combination of new issues, and refinancing of existing junk. Wall Street created a blizzard of junk paper – and sold it all. The window for all this biz was clearly the Fed. The promises of endless ZIRP and $85B a month of artificial demand forced yield starved investors to run to the junk pile. In the process, the cost of issuing the junk fell to record lows.

Over the coming months, Bernanke and the other Fed doves will point to the huge run up in junk as “definitive evidence” that their policies are working. Ben has said (dozens of times) that he wants to force money into taking risk. His tool to achieve this goal is the promise of endless cheap money. So Ben is looking at the junk data, and crying “Mission Accomplised!”.

Of course I see it in the opposite light. We’re in a junk bubble. The bag of gas is brought to us by the Fed. The yields on junk have fallen to levels that are going to produce negative returns. Not all of this paper is money good – it never is – that’s why they call it junk.

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About Bruce Krasting 208 Articles

Bruce worked on Wall Street for twenty five years, he has been writing for the professional press for the last five years and has been on the Fox Business channel several times as a guest describing his written work.

From 1990-1995 he ran a private hedge fund in Greenwich Ct. called Falconer Limited. Investments were driven by macro developments. He closed the fund and retired in 1995. Bruce also been employed by Drexel Burnham Lambert, Citicorp, Credit Suisse and Irving Trust Corp.

Bruce holds a bachelor's degree in economics from Ithaca College and currently lives in Westchester, NY.

Visit: Bruce Krasting's Blog

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