Meltdown in Junk Bonds Is Just Beginning

NewsMax: Carl Icahn: Meltdown in Junk Bonds Is Just Beginning

A day after a prominent Wall Street firm shocked investors by freezing withdrawals from a credit mutual fund, things only got nastier in the junk-bond market.

Prices on the high-risk securities sank to levels not seen in six years and, to add to the growing sense of alarm, billionaire investor Carl Icahn said the selloff is only starting.

“The meltdown in High Yield is just beginning,” Icahn, who’s been betting against the high-yield market, wrote on his verified Twitter account Friday.

Icahn’s comments come as junk-bond investors, already stung by the worst losses since 2008, are the most nervous they’ve been in three years after Third Avenue Management took the rare step of freezing withdrawals from a $788 million credit mutual fund.
The risk premium on the Markit CDX North American High Yield Index, a credit-default swaps benchmark tied to the debt of 100 speculative-grade companies, rose 36 basis points to 514.52 basis points, the highest since December 2012. BlackRock’s iShares iBoxx High Yield Corporate Bond ETF, the largest fund of its kind, fell to the lowest levels since 2009.

The move by Third Avenue, announced on Dec. 9, is the latest omen of stress in a market already beaten down by a prolonged slump in oil prices that has battered the energy sector. The news came as appetite for risk globally is souring as the countdown to the Federal Reserve’s probable interest-rate increase sparked a selloff in equities and other risk assets.
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