William Gaddis’s J R and the Many Faces of Junk Bonds

This article reads William Gaddis’s 1975 novel J R as a way of probing the relation between finance and fiction in the 1970s, showing that the novel is related to the revolution of the junk bond market in the 1970s and 1980s, as personified by the junk bond king, Michael Milken. While the question of junk bonds may appear to have little purchase on the much bigger story of the economy as a whole, the author argues that junk bonds were integral to the transformation of the finance economy in the direction of an entirely debt-driven one and that a literary work such as Gaddis’s novel may offer an insight, however complex and convoluted, into this particular transformation. The article concludes with some critical remarks on Gaddis’s critique of capitalism.

Overvalued tech stocks are not the largest market risk

Significance While markets are vulnerable to a sharper unwinding of bullish bets on the tech sector, comparisons with the 2000 dotcom bubble are misguided: Big Tech firms enjoy a stronger financial position now, and the sector is a winner from both the pandemic and the collapse in bond yields. Impacts The prices VIX-linked futures contracts are trading at imply the US election may be the costliest event ever for traders to hedge against. Market measures of US inflation are falling, stoking fears that the recovery will be fragile; the five-year breakeven rate is down to 1.4%. US high-yield, ‘junk’ bonds are under the most pressure since March, suggesting that the volatility could presage a disorderly sell-off.

Investment-grade bond rating downgrade fears will rise

Subject Investment-grade bond market. Significance Corporate debt has increased worldwide since the global financial crisis; the IMF Global Financial Stability Report warned this month that as much as 40% of the corporate debt of the major economies could be vulnerable to default in a financial downturn even half as severe as that of 2008-09. Rising amounts of investment grade debt are in danger of being downgraded to a speculative or junk rating. This could force institutional investors to sell newly classified junk bonds, exacerbating any downturn. Impacts US economic and financial outcomes will be crucial to the health of the investment-grade bond market given the large US BBB-rated market. Loose monetary policy will help corporates to manage their funding costs but might not offset the impacts of sharply slower global growth. Many major firms are reducing their debt to help to protect their credit ratings, but sharply slower growth might alter their priorities.

An Index of the Yields of Junk Bonds, 1910–1955

We present a new monthly index of the yields on junk bonds (high risk, high yield bonds) for the period 1910–1955. This index supplements the indexes of government bond yields, and Aaa and Baa corporate bond yields economic historians have relied on previously to describe the long-term risk spectrum. First, we describe our sources and methods. Then we show that our junk bond index contains information that is not in the closest alternative, and suggest some ways that the junk bond index could be used to enrich our understanding of the turbulent middle years of the twentieth century.