Brian Chappatta, Columnist

Junk Bond ‘Rally’ Tells a Deceptive Story

There are too many moving pieces in the high-yield market to signal an all-clear for the riskiest companies.

November 16, 2020 at 12:00 PM 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.

On the surface, junk bond yields seem to be signaling all clear. Don’t be so sure.
Photographer: Daniel Acker/Bloomberg

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The junk bond market’s magic number is 4.56.

First, the average yield for the Bloomberg Barclays U.S. corporate high-yield index plunged the most in seven months to 4.56% on Nov. 9, easily breaking the previous all-time low of 4.83% set in June 2014. Then, data compiled by Refinitiv Lipper found that investors poured $4.56 billion into U.S. high-yield bond funds in the week ended Nov. 11, the seventh largest inflow ever and the largest since June. It’s a strange coincidence, no doubt, though both figures would seemingly indicate that traders are getting increasingly comfortable with owning debt from some of the riskiest companies, even as Covid-19 outbreaks and hospitalizations escalate across America and the globe.