CalPERS to Buy More Junk Bonds

High-yield corporate junk bonds got a vote of confidence Tuesday from the nation’s largest public pension fund.

The California Public Employees’ Retirement System voted to pump as much as $1.5 billion more into junk bonds through five investment managers. The move will bring CalPERS’ holdings of junk to about 5% of total fixed-income assets, from about 1.5%.

The move, which follows up a decision by the fund’s investment committee early this year to buy more junk, comes as yields on the bonds have rebounded a bit after diving since September.

Junk issues are those considered below investment grade. Defaults on such bonds have been soaring this year amid the weak economy, and that drove investors to demand yields above 12% on many junk issues by early October.

But with rising expectations for an economic recovery in 2002, many investors have flocked back to junk issues over the last two months. The yield on an index of 100 junk issues tracked by KDP Investment Advisors has fallen from 12.19% on Oct. 1 to 11.21% currently. It hit 10.78% on Dec. 5.