The economy's fragile condition means the junk bond default rate could reach 25 percent, says Shawn Matthews, CEO of Cantor Fitzgerald, one of the country's biggest bond dealers.
"The default rate really is a reflection of the past, as capital has been starved out of the system and people are trying to build their businesses," he told Bloomberg TV.
"They're going to need to figure out new ways to attract capital into the area. The default rate could go to 20 percent or 25 percent by the time it's over, because the world is still a bad place," Matthews said.
According to Matthews, the recent gains in distressed debt represents "a liquidity rally."
"Money is searching for an interesting place or went out on the credit curve. It's kind of what the G-7 and central banks are pushing for," he said.
And what was that?
"They wanted people to get more risky assets on their books, and that's happened," Matthews said.
"But we still have an economy where the underpinnings aren't so great. People are looking for green shoots to appear. They have, but we've thrown trillions of dollars to get those green shoots."
That means "it's going to be an up and down economy for the next several years," he said.
Many experts are cautious about acquiring distressed debt now. "We're not confident about buying high-yield bonds until the outlook for the economy is set to improve," said Michael Sheldon, chief market strategist for RDM Financial Group.
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