Are Junk Bonds the New Sovereigns?

| About: SPDR Barclays (JNK)

Important nugget in new Fitch report about the absurdly low default rates so far in 2010 on junk bonds:

Just one year after the most volatile and unnerving period on record for the financial markets and for the U.S. economy, the pace of high yield defaults has slowed so dramatically in 2010 that even the most optimistic forecasts do not reflect that defaults are running at a full-year rate of roughly 1%. In the first five months of 2010, there have been nine issuer defaults affecting a combined $1.7 billion in bonds, for a year-to-date par default rate of less than half a percent. In 2009, 151 issuers defaulted on a record $118.6 billion in bonds, producing a 13.7% default rate. The decline in defaults has been so steep that on a trailing 12-month basis the default rate is already down to 5.9% but this level is overwhelmingly a product of 2009 defaults. [Emphasis mine]

We’re not far off the annual run rate of sovereign defaults in the 1980s, so, as a friend of mine likes to say, maybe junk bonds are the new sovereigns.