Bondholders Lose Protections

With the recent low interest rates, investors are searching for yields. As a result, borrowers are able to reduce protections offered to lenders. Moody's Investors Services tracks bond covenants and recently the Moody's Bond Covenant Index reached 4.51, a record high. In this index, 1 indicates the strongest covenants, while 5 indicates very weak covenants. In other words, investors are willing to give up protection in an effort to increase yields.