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Safe Money Report

June 20, 2001

Individuals Face Risk, Too

Banks aren't the only lenders in jeopardy. Corporate bondholders are also vulnerable to the current economic slowdown. Total corporate debt is a whopping $4.7 trillion -- nearly three times the amount of consumer debt! And that debt is not just in the form of traditional bank loans, it also takes the form of junk bonds held by individual investors.

In just the first five months of 2001, businesses have issued $43.8 billion worth of junk bonds -- a higher total than all of last year. At the same time, defaults on corporate bonds are skyrocketing. Total defaults on high-yield bonds for the first four months of 2001 have already surpassed the total for all of 2000. Just in April 2001, high-yield bond issuers defaulted on a record-high $11.1 billion worth of loans.

And individual bondholders lose big time when corporations default on their loans. While banks will feel the equivalent of a paper cut, individual investors will get shoved through the wood chipper.

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