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Politics : Ask Michael Burke

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To: James F. Hopkins who wrote (63325)	6/28/1999 10:44:00 AM
From: Knighty Tin	Read Replies (1) of 132070

Jim, the junk bond market is easy to explain. About 15 years ago, a bunch of pointy-headed academics published a series of studies that "proved" that junk bonds outperform investment grade bonds and Treasuries. Since then, they haven't, which is typical for academic recommendations. <g> Right now you have the problem that the junk is getting junkier and the lower investment grades are becoming junk and the higher investment grades have the population density of Siberia. The increased credit has led to much more supply than demand for these bonds. Thus the lousy performance. Every quarter I managed a Treasury Bond fund that used options, we outperformed our junk competitors. That isn't supposed to happen. And we have to remember that junk bond prices are mostly fantasy as there is not really a bid for the stuff in circulation, especially now that Drexel is gone.

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