Appetite For High-Yield Bonds Is Getting "Ridiculous"

That’s what a pair of analysts at Citi (C) are saying, anyway.

Bloomberg: Investors are buying bonds from the lowest credit-quality issuers without restraint, according to Citigroup Inc.

Yields on high-yield, high-risk debt have narrowed by 80 basis points relative to benchmark rates in the past two weeks, Citigroup analysts John Fenn and Jason Shoup wrote in a Sept. 18 report. Last week, 13 companies, including casino owner MGM Mirage and video chain Blockbuster Inc., sold more than $6.5 billion of bonds, they wrote.

“These are the kinds of dynamics that cause strategists to wake up in the middle of the night and go for a long run,” the New York-based analysts wrote. “We understand investors are not supposed to fight the cash, but this is starting to become a bit ridiculous.”

If you’re looking for signs of a bubble, or at least complacency, this is probably a good avenue to hunt down. A disregard for risk and a chase for yield may foretell trouble.

However, as we argued last week when we looked at the subject, we’re still levels above where the crisis really started, so we still have a ways to go until we hit total complacency. But we’ve obviously come a long way, and it’s something to watch out for.

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