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US junk bond sales surge

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September 7
1:10 PM 2013

The sales of junk bonds in the US surged this year. Investors bought the bonds as it had been giving better returns than investment-grade securities for seven straight months.

Just this week, Sprint Corp was able to raise USD 6.5 billion when it issued speculative-grade bonds. It was the largest deal in junk bonds since 2008. Data compiled by Bloomberg showed that the issuance was USD 44.8 billion more than the bond offerings issued in the same period last year. In the past four months, junk bond sales had more than doubled that it is likely to surpass USD 353.1 billion in sales for 2012.

Speculative bonds had become popular also because buyers wanted to purchase securities that would protect them from the increasing interest rates. A source told Bloomberg that it was this demand that enabled Sprint to sell 63% more junk bonds that its initial target.

LPL Financial Corp Market Strategist Anthony Valeri told Bloomberg through email that the bonds provided investors defense against rising interest rates. "It's fared better than most fixed-income sectors and certainly better than investment grade," he said.

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