Deals
As Credit Markets Rebound, Neediest Borrowers Are Left Behind
- Gap between investment-grade and high-yield spreads narrowing
- Yet a growing disparity between junk issuers may signal danger
Source: Bloomberg
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The $1.2 trillion U.S. junk-bond market has staged a marked recovery in recent days. But pull back the curtain and it’s clear not all borrowers are reaping the benefits equally.
For many of the riskiest credits, the situation remains as dire as ever, leaving them with little chance to access the financing they desperately need -- at least, not anytime soon. Risk premiums on bonds rated CCC remain near the widest since 2009 relative to securities a few notches higher in the B and BB buckets. The Federal Reserve’s announcement Thursday that it will start buying debt recently downgraded to the highest junk tier could ultimately exacerbate the divergence, according to analysts, even as the broader market rallies.