A look into the word of Junk Bonds - ANZ
Analysts at ANZ explained that the global junk bond market has had an impressive run.
"However, it hasn’t been an entirely smooth ride. On two occasions this year (March and August) US corporate high-yield bond yields have jumped 40-60bps only to resume their downward trend. But at 3.5% today versus over 8% in early 2016, it’s been quite the rally, and some are nervous that it may not be sustainable."
"The traditional support factors remain in place: US growth is strong, as are equities, and volatility is low.
However, oil prices are rising and central banks are ever-so-cautiously sounding a little more hawkish. The market is an obvious first stop should there be a more generalised rise in yields and an associated spike in risk aversion. (These same yields hit nearly 20% in 2008)."
And of course it isn’t only the US high-yield corporate market where spreads are looking unusually tight: emerging market bond spreads are extremely compressed too.
That said, there are exceptions: Venezuela’s 3-year bond yield is over 100% on expectations of a looming default. Seems some risks are still beyond the pale."