No longer "way overvalued," junk bonds are "way, way overvalued," says Martin Fridson, estimating fair value of the BAML high-yield index at 570 points over Treasurys vs. the current level of just 376 basis points.
He says high-yield has been in extremely overvalued territory for seven straight months, the longest streak in history. "Investors are accepting excessively small compensation for credit risk, so desperate are they to boost their yields. High-yield portfolio managers are not unaware of the inadequacy of spreads, but are willing to skate on thin ice on the assumption that the Fed is committed to rescuing them if anything goes wrong."
GMP Securities' Adrian Miller, meanwhile, is in agreement on overvaluation, but says - more or less - you've got to dance while the music's playing. A "repricing event," says Miller is not on the near-term radar.