Carl Icahn: Oil Woes Prove Junk-Bond Bubble and Today’s Other Top Stories

Billionaire activist investor Carl Icahn says junk-bonds may be in bubble territory and that the recent sell-off in the market, as a result of plunging oil prices, supports his suspicions.

In an wide ranging interview with Bloomberg, Icahn said high-yield bonds “are still at way too low an interest rate. In other words you can borrow money too cheaply if you’re a risky company.”

While people argue that there is enough cash flow to cover the interest payments on the bonds, Icahn says much of the cash flow is “ephemeral” and that high-yield debt is a “bubble that’s going to burst in the next couple of years.”

Icahn told Bloomberg that oil-related jitters in the junk bond market “might be construed as proof of what I’m saying. Six months ago, you would have said those are fine. Now there are a lot of questions about them.”

Beyond the junk bond market, Icahn said the collapse in oil prices will eventually present investors with a great opportunity, “but not now.” Icahn told Bloomberg the energy sector is in for more problems, oil prices will probably go down more and that energy companies, especially in oil services, are going to suffer. “But then I think there will be a tremendous opportunity,” he added.


Todays Other Top Stories

Municipal Bonds

Benzinga: – Don’t overlook municipal bonds. – While the U.S. Treasury trade may be getting very long in the tooth, there is another area within fixed income that may be able to hold up better when interest rates start to increase. The municipal bond market offers lower yields than corporate bonds, but carries tax advantages that potentially appeal to those in high tax brackets.


Bond Market

The Telegraph: – Why gloomy prophecies for bonds look to be wrong again. – That 30-year bond bull market is certainly very long in the tooth. But there’s no more reason to expect it to expire messily this year than there was 12 months ago.

FT Adviser: – Bond returns could ‘struggle to be positive’. – Bond fund managers have once again warned investors could be facing a fixed income calamity next year, in an echo of last year’s gloomy bond forecasts that proved wide of the mark.

FT: – Warnings of a potential bloodbath in bonds. – (Subscription) There is a big disconnect between the U.S. Federal Reserve and the international bond markets. It is a disconnect that could lead to one of the biggest sell-offs in bonds for a long time. Some fund managers even say 2015 might be like 1994 all over again, when the government bond markets crashed as the Fed aggressively raised interest rates.

Boston Business Journal: – SEC is examining mutual funds’ investments in leveraged loans. – The Securities and Exchange Commission has launched a major review that could lead to a crackdown on mutual fund companies, including some in Boston, that offer clients investments in funds that can sometimes take weeks to unwind.


High Yield Bonds

ETF Trends: – Junk bond ETFs dodge sell-off in fund industry. – Investors hightailed out of speculative-grade debt this week, yanking almost $1.9 billion from junk bond funds as the rout in the energy market deepened. However, high-yield bond exchange traded fund investors seem less pessimistic.

MarketWatch: – High-yield bond funds see $1.9 billion outflow in latest week. – Investors pulled nearly $1.9 billion from funds dedicated to low-rated corporate bonds in the past week, extending a retreat from risky debt amid a free fall in the price of crude oil.

ETF Trends: – Junk bond ETFs dodge sell-off in fund industry. – Investors hightailed out of speculative-grade debt this week, yanking almost $1.9 billion from junk bond funds as the rout in the energy market deepened. However, high-yield bond exchange traded fund investors seem less pessimistic.

Businessweek: – Junk-bond yields post biggest weekly jump in three years. – Junk-rated companies had the biggest weekly jump in borrowing costs in more than three years as the plunge in oil prices roiled corporate-debt markets.

WSJ: – Junk-bond worries spread beyond oil. – (Subscription) The oil bust is exposing cracks in the $1.3 trillion junk-bond market, putting pressure on a key source of corporate financing and potentially crimping economic growth.

Investing.com: – Junk bond carnage: Where should investors focus? – High-yield bonds, also known as junk bonds, issued by U.S. energy companies have come under selling pressure in recent weeks as Crude Oil prices have fallen to lows not seen since mid-2009.

WSJ: – Junk-bond woes may signal end to easy corporate borrowing. – Junk bonds have proven resilient, bouncing back after modest pullbacks. But some are betting this current decline will deepen, as investors are uneasy about the global economy and Federal Reserve interest-rate increases that many expect to begin next year.

Zacks: – Junk bond ETFs–unfortunate victims of the oil crash? – Junk bonds have been among the major victims of the 40% plunge in oil prices in recent months. These bonds with low credit ratings and high yields now appear to be on track to deliver their worst annual performance in the past six years.

Bloomberg: – Energy bonds breach distressed level amid oil Selloff. – The average borrowing cost on junk-rated energy bonds reached distressed levels for the first time in at least three years as plunging oil prices threaten to cut into the revenue of companies exposed to the commodity.


Emerging Market Bonds

Bloomberg: – Bulgarian bonds fall to lowest in month after S&P rating cut. – Bulgaria’s Eurobonds fell for a fifth day after Standard & Poor’s lowered the country’s credit rating to junk, citing risks to the budget from a weakness in the banking system and deflation.

Bloomberg: – Venezuelan bonds fall to 16-year low as Maduro affirms subsidies. – Venezuelan bonds dropped to a 16-year low as President Nicolas Maduro said he has no plans to curb gasoline subsidies while not ruling out the possibility of default.


Investment Strategy

Motley Fool: – Retirement Investing: Is this the best option for almost everyone? – Not everyone loves the process of researching and investing in stocks as much as we Fools do. In fact, the majority of people probably have a lot of other things on their plate and are simply looking for someone to wade through the confusing world of finance for them.

ETF Trends: – Investors dumping short-term bond ETFs. – Ultra-short-term bond exchange traded funds are bleeding assets as short-term yields rise in anticipation of the Federal Reserve’s eventual interest rate hike.

Valuewalk: – Bond investors should watch out for the flavor of the month. – Rising rates and inflation aren’t the biggest risks high-yield bond investors face today. We think the larger concerns are concentration and crowding stemming from low liquidity.


Bond Funds

WSJ: – Amid crisis, Pimco steadies itself. – (Subscription) At Pacific Investment Management Co.’s holiday party at the Hyatt Regency Huntington Beach Resort and Spa on Dec. 6, more than 1,000 employees and their spouses admired the Pacific Ocean and mingled between stops at appetizer stations.

MoneyBeat: – Bond fund inflows rebound on low growth and inflation. – It’s turned out to be a ripe old year for fixed income funds, according to strategists at Bank of America Merrill Lynch. Fund data for the year so far show that investors piled into investment-grade bonds and government debt in the face of falling global growth prospects and inflation rates.

WSJ: – Bill Gross’s new fund is trailing Pimco Total Return. – (Subscription) It’s far too soon to say anything definitive about the performance of Bill Gross’s new Janus Global Unconstrained Bond Fund vs. his former flagship, the Pimco Total Return Fund.


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