The following is my very uninformed opionion. I'm not a securities lawyer, but I do own massive amounts of junk bonds [$250,000 face, spread acoss 30 issues, or half my portfolio, which is an admittedly huge overweight from the perspective of MPT, but the asset class suits my temperament], and I think you were screwed. Your broker offered you advice that was irresponsible to say the least. To move a client from gov'ts to junk, rather than merely adding a small speculative position, was stupid and indefensible. It's obvious he doesn't know bonds and doesn't follow the bond market but was trying to unload inventory on a sucker. Threaten to sue the idiot and settle with the firm for their making good your losses [alternatively, make them reverse those trades.]At the very least, if you're not inclined to fight, report your experience to the SEC and get their informed opinion as to what you should do, rather than asking us in the peanut gallery. Also, you'd do other would-be bond investors a service if you publish the broker's name and the name of the firm so they could avoid that den of thieves.As for junk zero's, PIK's, etc., I'd never touch that stuff. When you buy junk, you want as big a margin of safety as you can create for yourself [by doing such things as only going after seasoned bonds with huge discounts and fat coupons issued by companies with piles of assets, and even then you allow for at least twice the historical default rate or else you aren't managing your risks carefully enough.] Disclaimer: I own some of those same Level 3 bonds, the 9 1/8's of '08, but I paid $44, which is the sort of discount junk has to be bought at, otherwise its risks become astronomical and you're buying lottery tickets rather than what, in effect, might be considered long-dated, out-of-the-money calls. The former might have some entertainment value. The latter is a strategy that that can be defended, but it is nothing to be attempted if you haven't done your homework and aren't sizing your positions to be able to absorb the inevitable losses that come with trying to capture the asset class's risk premium. [They don't call this stuff junk for nothing.] Charlie
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