Bonds & ARM Loans
Global high-yield bond prices fell for the first time in eight months in January, according to Merrill Lynch, one of the leading index providers in the market. The weak start could be a warning sign to investors.
January is traditionally a strong month for the market and this was only the third time in the index's 19-year history that the market fell in the first month. On the two previous occasions, in 1990 and 2000, the weak start led to full-year returns of minus 4.4 per cent and minus 5.1 per cent, respectively, according to Merrill Lynch.
Currently bonds rated Caa or lower make up 20% of the outstanding supply of speculative bonds. That is twice the level reached in 1998 when the Asian financial crisis and Russian debt default ended the reign of LTCM. According to Moody’s, the percentage of risky debt is unprecedented.
Last year 53% of all corporate bonds issued were floating rate. In order to unwind these positions many large financial institutions would have to take losses on their portfolios.
Last year interest only loans skyrocketed to make up more than 39% of all loans. That is up from 10% in 2002.
Buyers of homes are resorting to adjustable rate mortgages, interest only and negative amortization loans. In San Diego County in 2004 adjustable-rate mortgages represented 80% of all new purchases last year.
January is traditionally a strong month for the market and this was only the third time in the index's 19-year history that the market fell in the first month. On the two previous occasions, in 1990 and 2000, the weak start led to full-year returns of minus 4.4 per cent and minus 5.1 per cent, respectively, according to Merrill Lynch.
Currently bonds rated Caa or lower make up 20% of the outstanding supply of speculative bonds. That is twice the level reached in 1998 when the Asian financial crisis and Russian debt default ended the reign of LTCM. According to Moody’s, the percentage of risky debt is unprecedented.
Last year 53% of all corporate bonds issued were floating rate. In order to unwind these positions many large financial institutions would have to take losses on their portfolios.
Last year interest only loans skyrocketed to make up more than 39% of all loans. That is up from 10% in 2002.
Buyers of homes are resorting to adjustable rate mortgages, interest only and negative amortization loans. In San Diego County in 2004 adjustable-rate mortgages represented 80% of all new purchases last year.
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