When will the “bond bubble” pop?

For investment analysts, it’s not a matter of if the so-called “bond bubble” will pop- it’s when.

Sure, there’s a lot of good news. Junk bond yields are low and it’s definitely a great time to be on the borrowing end of the equation. Lenders are freely giving out low rates, all the while also letting companies skirt earnings requirements on refinancing agreements.

When’s the last time we saw “covenant light loans”, as they are called, at these levels? The last financial crisis.

The trends have some shaking their heads, including Apollo Group CEO Leon Black, who says, “There is no institutional memory” in reference to the actions of lenders. What’s the problem with the covenant light loans? That lenders won’t necessarily have any idea if a company is getting into financial trouble.

Of course, there are always dissenting views, and a few believe that a lack of default triggers can really help companies in the long run. Furthermore, there is talk that lenders aren’t letting companies carry the amount of debt that they would have before the financial crisis.

Others are warning that the higher the market moves, the sharper the eventual drop-off will be. One of those individuals is Komal Sri-Kumar, who is president of his own global research firm. Paraphrasing former Citigroup CEO Chuck Prince, he says that eventually “the music will stop, and not everyone will have a seat.”

Despite the high stakes game of musical chairs that lenders and borrowers are playing, it’s only natural to wonder whether the inflated markets that have been affected by Fed actions will eventually leave many out in the cold. When interest rates inevitably start going up, everything is going to change, and quickly. Until then, everybody involved is happy to continue playing the game.