The Good News in Junk

One segment of the financial arena that has been very strong recently is the so-called junk bond market. Junk bonds, or risky corporate bonds that paid high interest rates, helped fuel the boom of the 1980s, of course, and when their market fell apart, they were eventually re-branded as "high-yield bonds." But now they're hotter than ever: There were a record $38.3 billion worth of these bonds issued in the month of March. (The previous high was $36 billion in November 2006.) They're so hot people don't mind if they're referred to as "junk bonds" again.

A big part of this resurgence is the continued near-zero interest rate offered by the Fed. Even relatively risky bond issuances can get decent rates; these high-yield offerings are paying only about 6 percentage points higher than Treasury debt at this point. Those interest rates are inducing more and more companies to issue debt, which is easier to pay back when "high-yield" doesn't have to be all that high.

It's also a sign of confidence in the economic recovery. Companies take on debt to fuel expansion and growth, and they don't take it on unless they feel confident that they will be able to pay it back. If they feel confident about being able to pay back even high-risk debt, that's a very good sign for our economy.