high yield

Don’t Look Now, But The Junk Bond Bubble May Be Bursting

I’ve been shouting from the rooftops, pounding the table, beating dead horses, etc. etc. for months about the increasingly precarious junk bond market.

While analysts have grown more cautious of late about the prospects for HY given not only the mammoth spread compression we’ve seen over the past 12, but also the relative compression versus IG…



… my warnings have generally fallen on deaf ears as the risk-on sentiment and the assumption that riskier credits carry less rate sensitivity has kept a bid under the market. Have a look at just how stretched HY is:



So that’s from a note out Wednesday and it shows HY spreads are now in the 14th percentile versus the last ~two decades compared to the 85th percentile during last year’s deflationary doldrums. As Goldman notes, if you look just at the post-crisis period, “HY spreads are now in the 2nd percentile (i.e., spreads have been wider 98% of the time).” 

Well, it looks as though things may be starting to come unglued. As risk (i.e. stocks) meanders lower, synthetic spreads are starting to widen…


…and if that sounds esoteric to you, check out HYG and JNK (i.e. retail money’s favorite junk bond ETFs):


Let’s just hope someone’s buying when the bottom finally falls out.

2 comments on “Don’t Look Now, But The Junk Bond Bubble May Be Bursting

  1. Anonymous says:

    Someone’s listening! I made some good money on HYG this past week. Thanks!

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