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Are there parallels between mortgage securities and junk bonds?

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Are there parallels between mortgage securities and junk bonds?

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In a story from the Wall Street Journal, bond markets are growing riskier as investors seeking steady returns bid up prices and ignore some early warning signs similar to those that flashed during the credit bubble. Last week, prices on high-yield, or junk, bonds hit their highest level since 2007, nearly double their lows of the credit crisis, and companies are selling record amounts. We’re seeing a declining rate of corporate defaults lately and a belief that, as long as the economy doesn’t relapse into recession, default rates will continue to decline. “The financial crisis purged many weak borrowers from the system, and corporate balance sheets are generally stronger today than before the crisis.” Interest rates paid by companies with strong credit ratings have tumbled this year, falling to 1.8 percentage points above the yields on comparable U.S. Treasury bonds, which themselves are among the lowest yields in decades. Most folks in the business come across loans that don’t quite f

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