Wolf here: This comment by VegasBob on my article, Junk-Bond Turmoil just Preliminary, “The Real Panic Will Come With…” nailed it. It describes what happens to junk bonds you have in your portfolio – or stashed away in bond funds – when liquidity dries up, rates rise, and spreads rise. It’s a real predicament. The mainstream press rarely discusses it. The losses, even this early in the stampede out of junk, assuming you can sell it all, can be steep. Here it is:
Yes, liquidity in the junk bond market has more or less dried up, and prices are plummeting.
I have one 10K junk bond left in my portfolio.
It was at 83 in the beginning of May, when I should have sold it; now it’s down to 51, and trying to catch a bid for it is harder than pulling hens’ teeth.
I tried to sell it on Tuesday. My broker put out a ‘bid-wanted’ request that came back ‘no response,’ meaning not one dealer in the country was willing to buy it.
My thought is that what’s coming down the financial pike is going to be much worse than 2008.
For the article and the rest of the comments, click on the link above.