What’s going on here? Wall Street’s been at it again, selling bonds backed by chicken wings and music royalties like it’s 2007. What does this mean? Fast food revenues and royalties from artists like Shakira, Fleetwood Mac, and Bon Jovi might not scream “investment-grade” opportunities, but they’ve become the latest obsession. A craving for juicy returns has sparked the biggest boom in obscure financial products since the rowdy days that led to the global financial crisis. That’s got the pros bundling niche income streams – think fast-food franchise fees, song royalties, and oil well revenues – into bonds with higher yields than the boring, government-issued stuff. So while Wall Street’s dealmakers may be back to their creative best, let’s not pretend it’s out of idle curiosity: investor appetite has been driving this boom just as much as the bankers’ knack for, well, turning anything into a bond. And don’t bother Googling how to buy them: unless you’re a big-league investor, the vast majority won’t be available to you. Why should I care? For markets: Small fry, but big appetite. At $380 billion this year, these deals are still more of a side dish than a main course and, thankfully, small enough not to threaten the whole financial system. Plus, they are catering to a genuine need: baby boomers looking for steady, attractive retirement income. But the obscure nature of the bonds means their risks aren’t always front and center. And the more outlandish and complicated they become, the faster they’ve been growing. In fact, the number sold is up 50% this year compared to last, showing that greed is firmly back on the menu. The bigger picture: Risky rhythms. Shakira’s hips don’t lie, and maybe markets don’t either. This boom shows that yield-hungry investors have been pushing boundaries – and perhaps common sense – to lock in returns. They’ve been piling in because risk seems low, but history loves to remind us that risk is actually often the highest when it feels the lowest. |