Junk Bond Outlook: Why You Should Beware of the High-Yield-Debt Market

Junk bonds got issued at record rates in 2009 and again in 2010. And that pace has carried over into the New Year. While the ability to raise money in the less-than-investment- grade bond market indicates that the market is getting back to where it used to be, there are reasons to be worried. Investors chasing income in the form of high-yield debt - the technical term for junk bonds - are increasingly accepting lower returns and fewer protective covenants, even as they take on increased risk. Even if you're not a junk-bond investor, it's important to study and understand these recent developments in the high-yield debt market. The reason: They can serve as an early warning signal for trouble to come in the stock and bond markets. And if you are heavily weighted in junk bonds, now may be a good time to take some profits off the table.