Investors shun riskiest US corporate bonds on default fears

The riskiest US corporate bonds have come under fresh pressure this year, setting them apart from a rally across broader debt markets as investors remain fearful about stop-start access to funding and deepening distress for low-grade borrowers. Triple C-rated US bonds — the bottom rung of the credit quality ladder — are yielding 13.6 per cent on average, according to data from Ice BofA, up from just over 13 per cent at the end of 2023. Rising yields reflect falling prices.

01 percentage points on February 15, lower even than levels seen late last year when demand soared for corporate debt, after the Federal Reserve signalled that it would start cutting borrowing costs in 2024. The difference between lower-rated and higher-rated junk bond spreads “suggests that the market believes default rates and recovery rates are going to be much higher, and lower, respectively in the triple C market”, according to Testerman.

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