The explosive demand for high-yield debt products has been largely driven by the way that western governments responded to the recent financial crisis. Since Lehman Brothers collapsed five years ago, an incredible  12 trillion has been pumped into the global economy by the world's central banks as part of a concerted effort to maintain historically low interest rates and to prop up failing banks.

The impact of this monetary policy and unprecedented stimulus has been to create a heady mix of rising inflation and historically low government bond yields; a situation which has forced the majority of investors  even those who might be considered extremely conservative   to look further afield for better returns and a means of preserving their eroding capital.

This has led to people who are largely resistant to taking on greater risk being forced further along the risk curve simply to get an acceptable yield. And into this mix has come worrying signs of rising investor leverage and signs of increasing speculation. The danger of a bubble in the junk-bond market is growing and this is evidenced by the banker's recruitment trade, a reliable indicator for many analysts.                                  

 

Only recently, RBS recruited the former head of high-yield US bonds from USB after announcing that it plans to lessen its investment banking activities. If banks are now making their money from risky bond sales, most will be able to imagine what is likely to happen next.