So far this quarter, 130 companies have issued $75 billion in junk bonds. That is up 12 percent from the same quarter last year and is the most since Thomson Reuters began compiling data in 1980, according to the article. Junk bond mutual funds, along with their ETF cousins, reportedly have seen record inflows of $18.6 billion through March 26.
Supply of junk bonds has picked up in anticipation of higher interest rates. Demand has soared as investors have become less risk averse. Despite the belief that the Federal Reserve will keep interest rates low, experts are warning that they may soon begin to rise. As interest rates rise, bond prices fall, which would be a problem for investors in junk bond mutual funds.
Higher interest rates may also cause the economy to falter, leading to more defaults. "This is the talk of the market," Matt Conti, a manager of high-yield investments at Fidelity Investments, was quoted as saying, adding: "My general view is it's time to be defensive."
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