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