Junk-bond investors are getting fidgety amid a renewed plunge in the energy market.
The risk premium on the Markit CDX North American High Yield Index, a credit-default swaps benchmark tied to the debt of 100 speculative-grade companies, rose 2.4 basis points to 396 basis points, the highest level this year. BlackRock’s iShares iBoxx High Yield Corporate Bond ETF, the largest fund of its kind, extended its slump this month trading near a four-year low.
Oil prices that have dropped below $41 are rattling investors in the high-yield bond market. The debt is poised to post a third straight month of losses -- something that has never happened since 2008.
“Oil prices continue to hover at their lowest levels of 2015 and continue to stoke fears not only about the impact to the domestic oil industry but also about global growth,” Anthony Valeri, an investment strategist for LPL Financial wrote in a report. “The Federal Reserve, China, oil prices, and the U.S. dollar continue to be the main drivers of bond price movements this summer.”
The extra yield investors demand to hold speculative-grade bonds in the U.S. instead of government securities has climbed to 5.68 percentage points, according to Bank of America Merrill Lynch index data. That’s close to levels last reached in December.
JPMorgan Chase & Co. Cut its forecast for high-yield bonds, reducing their returns estimate for this year to 4.5 percent from 7 percent, according to a report last week.
“The best of times for high-yield are behind us and we are now witnessing the beginning of the end of the credit cycle,” Bank of America Corp. strategists wrote in a report Monday.