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According to the article in the New York Times, in 2012, “everyone has piled into” “the junk bond market. The article also observed, “The average yields on these bonds have dropped to 6.6%, hovering near a record low”.
a. What are junk bonds?
b. Is there connection between everyone having piled into the junk bond market and the yields on these bonds having fallen to a record low? Explain
c. Why everyone had piled into the junk bond market in 2012?
d. How do investors in the bond market assess the overall risk in the economy? What yield spread do the use? What kind signal does it send to investors in the bond market?
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