Enormous Red Flag: 1st Time Ever Junk Bond Yields Now Below CPI Inflation Signal Overcrowded Trade?

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For the first time ever, Junk-Bond Rally Pulls Yields Below Inflation www.wsj.com/articles/junk-bon…

Within only 2-3 months after corporate bond and credit markets froze up completely in February and March 2020, Wall St bond salespeople restarted selling (and increasing) massive amounts of junk bonds, leveraged loans and other toxic sausage OTC derivatives.

Now too many hedge funds and family offices are long junk bonds on leverage (probably more than Archegos). But they are not long junk bonds for income or yield but rather for capital gains and betting that the Fed will bail them out if their over leveraged, overcrowded bond trades blow up.

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Because lots of hedge fund managers are long junk bonds (using leverage) for capital gains. They are betting that the worst case scenario is that the Fed buys them for 100 cents on the Dollar before they go to zero. Only retail investors are buying junk bonds for yield. Professional money managers are buying junk bonds for capital gains using 8x or more leverage on the trades… What could possibly go wrong? (sarcasm)

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