Corporate bonds won't be safe

In SimplyNoRisk, we have a tradition of detecting bad products. It's hard to time our trading accordingly, though, so, in general, we don't try. Lately, we have been advising about artificial low interest rates in Government bonds, which ultimately has the goal of increasing inflation (hand in hand with QEs).

However, it's creating many side effects. One of the first ones is the warm-up in high yield bonds. Retail investors looking for some income or at least some decent yield are putting their money in low-rate corporate bonds, thinking the worst is over. The result is that high-yield bond funds have been buying everything, EVERYTHING. Some companies with almost no business have taken advantage of the situation and are transferring equity (through dividends) into debt: the equity holders are escaping and trapping the new debt holders.

The performance of high-yield funds has so far been incredible (link here) with an annualized return of around 20%, but we are just ahead of what is going to happen. Again the timing may be tricky, but we don't want to be there in any case. Remember subprime mortgages...