Less than five years on from the bankruptcy of Lehman Brothers the world is maybe facing another crash of epic proportions.
The Daily Telegraph reports that today, another bubble is ballooning - but unlike those that have gone before it - most investors, policymakers and analysts are well aware of its existence and the problems it could create.
Sales of high-yield debt – or, as they were once known, junk bonds – have exploded this year. In January alone, non-investment grade Asian companies, those whose debt is ranked by credit rating agencies as riskiest, sold just over $9bn of high-yield bonds, a year-on-year increase of more 6,000%, according to figures from data provider Dealogic. In Europe, sales of high-yield debt is also running at record levels and nearly $30bn of bonds have been sold so far this year.
In large part, the explosion in demand for high-yield debt has been a direct consequence of the response of Western governments to the last crisis. Since Lehman’s collapse, some $12 trillion has been pumped into the global financial system by central banks across the world in an effort to prop up banks and maintain low interest rates.
The impact of this unprecedented monetary stimulus has been to create a potent mix of historically low yields on government bonds and rising inflation, forcing even the most conservative of investors to hunt for yield in an effort to preserve their capital and achieve a return.
'What you’ve basically seen is people who don’t really want to take more risk being forced up the risk curve to get the yield they need', one London-based bond trader told the newspaper.
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