didja know that Wisdom Tree launched a CoCo bond ETF last week?
We've discussed liquidity traps before but not in this context.
Markets are made when one entity wishes to sell something and another entity wishes to buy something. If you have something worthless, nobody wants to buy it.
"junk" bonds are those that are risky investments. Because they are risky investments, they earn their holders high interest rates. It's just like car insurance: if you've got a DUI and three accidents on your record, you pay more to insure your car. If you have difficulty paying your credit card bill, your interest rate goes up. The insurance company makes money because the risk of any one driver costing them more than they earn is spread across lots of drivers. This, by the way, is why flood insurance is federally guaranteed: the risk of one homeowner costing more than they earn the insurance company is 100% which means we, the taxpayers, cover the difference.
Nobody is covering the difference in high yield bonds, and there are more high yield bonds right now than ever before.
And when it comes time to sell, there won't be anyone to buy.