Europe’s debt crisis brings opportunity to buy junk rated bonds of European companies but at the same time some are taking advantage of a growing price gap between European and U.S bonds. In the recent past, big jeans maker Levi Strauss has cancelled planned junk-bond offerings but what are junk bonds to the investors. Normal bonds are like loaning money to a trustworthy person who may need it for good reason and you have the feeling that he would pay you back. Not only will he return your money but also give some extra favour. Junk bonds are like loaning money to a non-trustworthy person and you are not sure if he will pay you back. His financial history is bad but you know if his next scam is successful, he would give you double the money.
Investors demand is high enough that some junk-rated European companies are even selling new bonds and traders have jumped on the gap between yields on Levi’s bonds in Europe and in the U.S. Some analysts believe that junk bonds are underpriced and they are highly attractive even though default rates are on the rise. It is quite possible that investors who are buying long-maturity-bonds now and have the patience could be well rewarded when the market finally turns. Not all investors are convinced that bond prices have hit bottom yet so they are still waiting to buy, anticipating even better bargains in 2012 as the European debt crisis continues to unfold.
Bond fund managers generally hold higher cash levels at year’s end so they will not be caught in a fire sale environment if redemptions suddenly increase. In recent weeks Levi’s has cancelled planned junk-bond offerings and one can read “Fixed Income Trading” report dated October 19, 2011 online for more awareness http://www.ccmfit.com/wp-content/uploads/2011/10/Levi-HY-bond-of-the-week-101911.pdf
In a slowing economic environment, money market managers are generally less willing to carry low-grade debt. Levi Strauss is not alone in avoiding the volatile junk-bond market, the rising default rates, profits warnings from corporate America and slumping share prices have had a negative impact on investors’ willingness to buy high-yield US junk securities. The lack of demand has forced junk-bond issuers to pay more and more to attract investors. Some analysts believe that junk bonds are underpriced and they are highly attractive even though default rates are on the rise. It is quite possible that investors who are buying long-maturity-bonds now and have the patience could be well rewarded when the market finally turns. If you wish to know more about Levi Strauss and read frequently asked questions about investment, visit the link http://www.levistrauss.com/investors/investor-faqs