Way back in January I discussed in some detail when investors would want to be in or out of the junk bond market (see http://lifeinvestmentseverything.blogspot.com/2012/01/dumpster-diving-in-junk-bond-market.html ). One of the most important things any investor in this market can do is know when NOT to be invested in junk, since owning junk at the wrong time can destroy quite a lot of value in a relatively short time period. The hallmarks of a junk bond market that is starting to get overly frothy include excessively tight spreads over treasuries, high volumes of new bonds being issued, and increasingly lax structures that strip much of the protection afforded to investors by covenants and other features of these securities. You might be inclined to think that after the horrendous debacle of 2009 the credit markets would exercise some discipline for a long time. There is increasing evidence that you would be wrong to think that.
