“We’re at an extreme over-valuation,” Martin Fridson, chief executive officer of FridsonVision LLC, said in the article. “When you’re not compensated adequately for the risk, you do tend to get punished for it. If the Fed is still sufficiently energetic about it, they could keep it at an over-valuation through all of 2014.”
With junk bonds showing signs of being overbought, Gundlach has lowered his allocation in speculative-grade debt in his Core Fixed Income Fund to 3% as of the end of last month from the expected average of 10%. [Junk Bond ETFs Gain Some Fans]
Interest rate risk seems to be the main driver of concern as credit risk remains muted. Speculative-grade global default rate is expected to hit 2.1% in December, down from 2.9% as of the end of 2013, according to Moody’s
For more information on speculative grade debt, visit our junk bonds category.
Max Chen contributed to this article.
Full disclosure: Tom Lydon’s clients own shares of JNK and HYG.