Despite the plethora of talking heads proclaiming credit markets as awesomely supportive of stocks – High-Yield bond spreads are flashing red…

But that's not stopping investors piling into the worst of the worst. As Liberty Blitzkrieg's Mike Krieger notes, in an all too reminiscent scene from 2007 (MBIA CDS traded 11bps at one point then remember), investors have been buying up bonds with a triple-C-rating en masse.

I hadn’t focused on the latest bout of credit market frothiness until the last couple of months, as investor activity has become so preposterous and disturbing that I simply couldn’t ignore it any longer. Before reading the rest of this post, I suggest catching up on two pieces I highlighted recently on the topic, which should help set the stage:

Is the Credit Bubble Popping? Carlyle Group Warns on Frothiness and Junk Bond Deals Get Pulled

Guest Post: Is There a Massive High Yield Credit Bubble?

Moving along to today’s piece from the Wall Street Journal, which focuses on investors’ insatiable appetite for CCC-rated bonds. We learn that:

Large investors are rushing into the riskiest corporate bonds, frustrated by low interest rates on safer investments and convinced that even companies with shaky finances are in little danger of default.

One sign of that rush: Investors have been buying up corporate bonds with a triple-C rating, a grade that analysts and investors consider highly speculative.

That buying is driving up prices on those bonds and pushing down their yields, which this month fell to 8.187% on a closely watched Bank of America Merrill Lynch index—the lowest level on record.

This embrace of risky bonds and the retreat from risky stocks reflect a world where interest rates are staying much lower, much longer than most had expected, some investors say. “What we’re seeing is the continued search for yield,” says Matthew Rubin, director of investment strategy at Neuberger Berman, which oversees $247 billion.

The 12-month trailing default rate from low-rated corporate borrowers edged up to 1.7% in April, from a six-year low of 1.57% in March, according to Standard & Poor’s Ratings Services.

The yield gap between junk bonds and U.S. government debt—a measure of the premium investors receive for taking on the risk of junk bonds—has narrowed. On triple-C-rated debt, that gap recently hit 6.97 percentage points, the lowest since November 2007. The all-time low of 4.14 percentage points was hit earlier that year.

A little too many comparisons to 2007 for my taste.

Just understand that your pension is going to be stuffed completely full like a Thanksgiving Turkey with the most toxic financial shit you can imagine by the time this thing blows sky-high.

Muppets will lose, as always.

Full article here.