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September's Credit Wipeout Foretells Even More Pain in Junk Debt

  • High-grade debt just capped worst month of returns since April
  • Junk bonds posted third straight quarter of losses; loans fell
Updated on

The pain is just beginning for investors in US credit markets after Federal Reserve tightening and recession angst sent investment-grade bonds, high-yield debt and leveraged loans spiraling in September.

Losses may pile up further in October for low-grade bonds and loans as debtholders wrestle with an unrelenting Fed, mounting economic risk and market volatility. Debt across the spectrum suffered in September, with high-grade bonds falling 5.26% on a total return basis, the most since April, while a key gauge of US junk debt dropped 3.97% and posted losses for a third consecutive quarter, the longest quarterly losing streak since March 1990. Loans, meanwhile, saw their worst September since 2008.