Risk Becomes a Safe Haven in Volatile Debt Market
- Junk bonds, junior debt have outperformed safer counterparts
- Coupons are sought after as spreads compress to historic lows
About $20 billion to $25 billion of US high-grade bond sales are expected in the coming week.
Photographer: Pichsakul Promrungsee/EyeEm/Getty Images
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In today’s topsy-turvy credit world, risky bonds are outperforming safe ones in periods of volatility. The reason? An increasing focus on interest income, or carry in industry parlance.
Strong inflows into credit funds have compressed spreads — the premium for buying corporate debt rather than safer government bonds — so much that further tightening looks unlikely. That’s left money managers seeking other ways to beat their benchmarks. Low-rated and junior bonds are increasingly attractive to them because the higher coupons they typically pay help offset falling values when yields move up.