A spectacular performance of the debt market during the past 12 months might be setting up bonds for a reversal in the near future. High-yield debt has recently outperformed returns from the 1992 and 2003 debt rebounds by a huge margin. Some of the most extreme abuses of the bubble-era debt market are back. Covenant-light loans, the commercial equivalent of subprime home mortgages, are popping up. The bond market is again embracing "payment-in-kind" securities, which allow the issuance of debt to cover debt service.
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