Fed Throws Junk Bond Lifeline to Weak Companies

From CNBC.com
By Jeff Cox
March 15, 2013

Struggling companies that otherwise might not be able to stay afloat have found a friend in the Federal Reserve.

The central bank’s cheap-money policies have allowed borderline companies to get low-cost financing thanks to investors who are thirsting for yield and buying risky bonds as the Fed keeps its target funds rate near zero.

While that’s been a boon for poorly rated firms, it also poses the threat that companies that otherwise might fail are getting artificial support and in danger of causing substantial economic damage once interest rates rise.

“We’re paying the price for a dysfunctional system,” said Cornelius Hurley, director of the Boston University Center for Finance, Law and Policy. “Fiscal policy is dead in the water because of the political stalemate in Washington, and as a result the Fed in its monetary policy role has to overcompensate…”

Read the full article at CNBC.com.