Retail brokers must be having a field day.  Imagine this:  it's okay to recommend junk bonds to customers - even those looking to avoid risk.  Incredible, but true - just look it up in today's Wall Street Journal.  Reporters Serena Ng and Matt Wirz tell us that investors are finding relative safety in some of the riskiest bonds around.  

Reduced Volatility.   Demand has never been stronger for high-yield, or "junk" bonds, issued by low-rated companies and emerging economies.  That's because they're seen as less likely to lose significant value with all the talk about the U.S. defaulting.  Stocks, investment-grade corporate bonds and Treasury obligations have been undependable, with prices bouncing all over the place. 

"What's benefiting the [high-yield] corporate market today is a lack of investment alternatives." -- Jim Casey, Co-Head of leveraged finance at JPMorgan Chase.

Opportunistic Financings.   One might be inclined to write-off the current activity as an aberration, an "unusual dislocation in the financial markets" - to use a phrase in the Journal.  Yet, then, why are the printing presses at low-rated companies working overtime - as issuers try to keep up with demand?  Demand has spurred these debt-laden companies to issue new debt - in huge quantities. 

Last week, for instance, some $10.53 billion in "junk" bonds were written, compared with $1.6 billion the prior week.  And consider this:  once the concerns over debt ceilings subside, this enormous supply of junk bonds will still be around - in the markets. 

HCA Inc., the nation's largest for-profit hospital operator, refinanced $5 billion in debt - the biggest junk bond sale since the U.S. financial crisis in 2008 - just a day after reporting weaker-than-expected earnings.  Consumer lender Ford Motor Credit, propane marketer AmeriGas Partners LP, and oil and gas exploration company Antero Resources also refinanced debt.

Emerging Markets Join In.   Similar trends appear in emerging markets, where companies and countries have over the past month been able to sell high-yielding bonds to investors that are trying to ride out turbulent markets in Western Europe.  Some bankers and money managers attribute the demand for junk bonds to investor expectations that bonds with fatter yields are better cushioned against changes in prices of Treasury securities, which form the benchmark for those bonds.

Mutual funds that invest in high-yield corporate debt and/or in emerging-market debt have benefited, as well.  Investors put $2.8 billion into high yield bond mutual funds in July, following a dismal June.  Emerging market funds took in $650 million last week.  By contrast, money market funds saw an outflow of $32 billion, while stock-market funds saw investors withdraw $2 billion.  Corporate borrowing in the investment-grade bond market also dropped - to its slowest weekly pace so far this year.

Nevertheless, CCO's should be on guard for a reversal of fortune.  At some point, they'll have to take away from brokers this privilege of recommending junk to conservative investors.  In the meantime, however, let them enjoy it. 

For further details, go to:   [WSJournal, 8/1/11, " 'Junk' Bonds Find Demand as Safe Harbor"]