Wall Street Elites Can't Stop the Junk Bond Party, Despite Dimon's Warnings

Junk debt investors are flipping the bird to Wall Street's biggest names and diving headfirst into the riskiest bonds available in the market. I've watched these cowboys pile into CCC-rated bonds—literally the trash heap of the debt world—which have outperformed everything else this month with a 0.75% return through Thursday.

Meanwhile, BB-rated bonds, the "premium junk" if you will, are getting dumped faster than a bad date. It's a complete reversal from earlier this year when everyone was terrified about Trump's trade wars and huddling in the safety of higher-quality junk.

But who cares about safety anymore? The stock market's on a never-ending bender, and suddenly everyone thinks they're invincible. As PGIM's Robert Tipp put it rather blandly: "As investors have become more comfortable, they've begun to reach for risk." No kidding, Bob.

Jamie Dimon isn't impressed though. The banking titan called credit spreads "a little unnaturally low"—classic banker understatement for "this is completely insane." He even admitted that if he were running a fund, he wouldn't touch credit with a ten-foot pole right now.

DoubleLine's Jeff Gundlach is equally bearish, keeping his "lowest ever allocation" to high-yield bonds. These guys aren't stupid—they see valuations completely detached from reality.

The really strange thing is happening at the opposite end too. Cautious money is fleeing junk entirely and sliding up to BBB investment-grade bonds. The yield gap between BB and BBB bonds has shrunk to just 75 basis points, way below the ten-year average of 120. So why stomach junk risk when you don't have to?

Then there's the "fallen angels" problem. Take Warner Bros. Discovery—its planned split triggered a downgrade that flooded the BB market with fresh debt. Barings' Kelly Burton noted they need to figure out "whether it will cause a technical dislocation." I'd say it already has.

While this madness unfolds, banks are making post-earnings funding decisions. JPMorgan went straight to the US investment-grade market, while Wells Fargo and Citigroup went hunting in Europe first.

In the corporate world, it's getting ugly. China Vanke is desperately trying to extend its loans by a decade. Chuck E. Cheese's parent company is begging equity investors for $600 million after failing in the junk market. Canadian retailer Couche-Tard just abandoned its massive $45.8 billion bid for Seven & i Holdings after a year of getting nowhere.

And the casualties keep coming: LifeScan Global filed for bankruptcy, while Zayo Group is scrambling to extend its debt deadlines.

This isn't just FOMO—it's financial suicide. But as long as stocks keep rallying, these yield-hungry investors will keep dancing until the music stops. And when it does, Dimon and Gundlach will be there to say "told you so."