After the spectacular fall in the stock markets and subsequent exchange traded funds (ETFs), investors are increasingly seen taking their money out from under their mattresses and putting it into riskier investments.
After the market low of March 9, the S&P 500 is up more than 35% and traders are throwing money at the weakest stocks. The top 100 stocks within the S&P have total debt of more than $4 trillion while the 100 worst performers have $746 billion in debt.
The current junk stock rally is seen as a natural event that would occur after a thorough beating of the equity markets. The rally has also hurt investment managers who kept to a conservative strategy and portfolio managers are now inclined to abandon that strategy to follow current market flows.
The same situation is leading investors back to junk bonds, as well.
The yield margins of high-yield bonds over Treasuries are narrowing, as seen on the Merrill Lynch U.S. High Yield Master II index, which shrunk from more than 2.1% in February to 1.2% last Thursday, reports Tom Sullivan for Barron’s.