Distressed Debt Best Market Performer? So says BoA

Ya gotta wonder about headlines like these, U.S. distressed debt best performer in 2009: report

U.S. distressed debt, among the hardest hit asset classes last year, has become the best, with returns of 39.5 percent year to date as risk appetite improves, Bank of America Merrill Lynch said.

For the month of May, distressed debt was second only to emerging market equities after returning 25.4 percent, Bank of America Merrill said in a research note late on Monday.

Should we believe BoA, who probably has a vested interest in selling off toxic assets?

The Financial Times notes:

Now there are signs the market could be thawing. The average bid of the most-traded risky European loans have enjoyed a 10-week rally. They are quoted at levels not seen since before the collapse of Lehman Brothers in September, according to Standard & Poor’s.

“Over the past month or two, we have seen a two to threefold increase in the volume of distressed bonds and loans being traded,” says Peter Tolhurst, global co-head of distressed debt at Deutsche Bank in London.

“This is coming from secondary market investors who want to take advantage of improving prices as well as banks, who have developed a more sophisticated approach to the secondary debt markets and are taking advantage of the strength of current conditions in the credit markets to manage their exposures,” he says.

Activity in this relatively niche market is hard to track because trades are done privately and investors are reticent to talk about the trades they have done.

Now when do the PPIP sales start again?

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PPIP may be dead.

If toxic waste is performing that well then there won't be much demand for more cash for trash:

The U.S. plan to rid toxic loans from banks’ balance sheets has been put on hold as lenders raise capital, a person familiar with the matter said today, suggesting less demand from banks to use the program.

This fine by me, we can use the money for other things. But if things get worse financial conglomerates have to sink or swim on their own and they must not be allowed to be a drag on the economy.

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if you can research this out

For I do not believe PPIP is dead, nothing I've looked into indicates that, more if these reports are true, it might be a built up to get more cash for trash because of the overinflation structure of the PPIP.

that was my conjecture, not proved.

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