In our current low-interest-rate environment, many investors are widening their search for more income by buying junk.
Junk bonds, that is.
More formally known as high-yield bonds - junk bonds have been on a tear lately.
With the Federal Reserve vowing to keep interest rates at or near zero through 2014, investors seeking higher-yield investments are eyeing junk bond exchange-traded funds (ETFs).
Investors dumped $31 billion into high-yield bond funds during the first quarter of 2012 according to research firm EPFR Global. That's almost four times the global demand for junk-bond funds in 2011.
Junk bonds are offering generous dividends at a time when most other bond investments aren't even matching the rate of inflation.
"Clients are essentially trying to replace the income they used to get from their government bonds," Hans Olsen, head of investment strategy in the Americas for Barclays Wealth, told Bloomberg News.
Indeed, one of the largest junk bond exchange traded funds, the iShares iBoxx High Yield Corporate Bond (NYSEArca: HYG) is currently yielding more than 7%, while yields on the 10-year Treasury note hover just above 2%.
But while robust demand and issuance for junk bonds is a sign of a healthy market, there are reasons for concern.