Most of the time, junk bond funds don't present huge problems to investors. Most people repay their debts; so do most corporations. The high yields from a diversified portfolio of junk bonds can overcome the occasional default.
Every so often, however, corporate lenders undergo a kind of mania that's not entirely different from manias in stocks, baseball cards or tulips. And while crying, "Bubble!" has been a cottage industry for some pundits, you can argue that high yield is starting to look, well, bubbly.
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A bubble doesn't just mean that prices seem weirdly high. Anyone who remembers when the Dow Jones industrial average broke through 2,000 blinks when he sees the Dow nudging up against 17,000. But corporate earnings have grown enough since January 2007 to support higher prices — or at least to argue that it would take a great deal of woe to get back to 2,000.