THE world of bonds is usually thought of as one of rigid divisions. At one end of the scale, there is government debt: safe, reliable, suitable for widows and orphans. At the other end, there are junk bonds: speculative offerings issued by companies with poor credit ratings and suitable only for the young and reckless.
That picture looks a bit out of date. Speculation is rampant that Greece might be about to default on its government debt again. Meanwhile, the short-term bonds of many European countries are trading at negative yields. That means investors are guaranteed to lose money in nominal terms (ie, before accounting for inflation).
Junk debt also looks a lot less like garbage than it used to. Contrary to its reputation, issuers are proving to be reliable payers, as a new study by Deutsche Bank shows. Since 1983 (the period for which Deutsche has data), the default rate for junk bonds has averaged 4.9%. But that disguises a big change that occurred after 2002. The average default rate from 1983 to 2002 was 6.9%; since then, the average has been just 1.5%. In this later period, the only year in which the default...
from The Economist: Finance and economics http://ift.tt/1DmQUyp
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