A Fitch report on Oct. 22 signals that as the Fed pushes bond investors to chase the yields of the highly leveraged issuers, the overall market is being dominated by issuance of the riskiest bonds - loans to corporations with a rating of CCC or lower.
"The share of newly minted bonds rated 'CCC' or lower climbed to 26% of total volume ($38.6 billion) -- a record for the year -- as the Federal Reserve's launch of QE3 further stimulated investor appetite for high yield in the primary and secondary markets," writes Fitch Ratings, in the report.
Those market dynamics help corporations stress and in need of financing - or firms that are being pursued by private equity investors. For instance, Sprint (S) recently went from the threat of bankruptcy to a buyout target as it readily found investors to meet its cash needs.
Booming debt markets have also helped private equity giants line up financing for buyouts or to alleviate pressures on existing debt saddled investments.Still, as Fitch Ratings warns in its report, booming junk debt markets aren't a panacea for cash strapped companies or, presumably, their private equity and public shareholders. "The Fed's efforts to revive the economy and a positive resolution to the U.S. fiscal cliff remain critical even as the heightened demand for yield product is allowing more highly levered and vulnerable companies to access the debt markets," writes Fitch. "A more robust economic environment is especially important over the next several years as the liquidity boost from record issuance diminishes," the agency adds. Were investors to shy away from chasing the prospective yields of publicly traded private equity investments, they may be wise to have a look at investing directly in public private equity firms. Currently, PE firms like KKR (KKR - Get Report), Blackstone (BX - Get Report), Carlyle Group (CG - Get Report) and Apollo Global Management (APO) carry big dividend yields and are seeing earnings recover as the value of their investments rises. On Friday, KKR swung to a profit compared with big losses at this time last year, as the firm's holdings gained in value and billions in new money flowed into its coffers. The results mirrored similar strong earnings from Blackstone Group earlier in October. For more on how Fed policies are causing investors to rethink their 2012 playbook, see why Warren Buffett's Wells Fargo investment hinges on Bernanke and why bank stocks may face Fed destruction in 2013 . Follow @agara2004 -- Written by Antoine Gara in New York