Brian Chappatta, Columnist

The Junk Bond Market Looks Like a Runaway Train

Too much cash is chasing too little debt. Everyone knows it, but nothing will change.

September 21, 2018 at 9:00 AM UTC

Brian Chappatta is managing editor of Bloomberg News' leveraged finance and distressed debt teams. He was previously managing editor and team leader of its wealth group. Before that he was a Bloomberg Opinion markets and finance columnist and a bonds reporter for Bloomberg News.

Building up steam.
Photographer: Dhiraj Singh/Bloomberg

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Bond investors often say that “No one wants to be a forced seller.” And that makes perfect sense: If you need to sell during a rout, no matter the price, you’re going to take a big hit. But it should be equally as scary to be a forced buyer.

Increasingly, that’s what happening in the U.S. high-yield corporate bond market. With ample cash and little new supply to purchase, investors have pushed the average spread on junk debt down to just 3.15 percentage points, close to the narrowest since 2007, according to Bloomberg Barclays index data. As recently as 2016, that gap was more than twice as wide.