Investors beware, the fundamentals of the junk bond market are looking terrible. The deterioration of the market has been happening for a long time, and thus it makes it easier not to realize it. The junk bond market is now about twice the size it was in 2007, and credit quality is lower. Protections for investors, in the form of covenants, are also much weaker as issuers were able to use the ultra-low rate market to their advantage. Now the big worry is that Libor is rising and many companies have floating rate debt that they cannot cover once it reaches certain levels.
FINSUM: According to the WSJ, the market should expect $500 bn of junk bond defaults over the next three years, and this figure could amplify considerably.