Brian Chappatta, Columnist

Junk Bonds Prove to Be a Shelter From the Rates Storm

Even with yields at record lows, the riskiest debt has appealing attributes in today’s markets.

March 3, 2021 at 6:51 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.

Protection from Hurricane Treasury.
Photographer: Angela Weiss/AFP/Getty Images

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The junk-bond market has never offered such low yields. And yet, it might just be the best place for fixed-income investors to ride out the tumult in U.S. Treasuries.

To grasp this, it’s crucial to understand exactly what kind of protection high-yield bonds provide. They don’t insulate investors much from stock-market swoons. I wrote in October 2018 that “Junk Bonds Aren’t Going to Save You,” and indeed the average yield spread jumped about 170 basis points in two months as equities tumbled, saddling speculative-grade debt owners with their worst quarterly loss in more than three years. Treasuries, meanwhile, had their best quarter since early 2016.