News Digest: Fed hike makes high-yield bonds more attractive
March 29, 2023
The latest round of key interest rate hikes by the Federal Reserve is making high-yield bond funds more attractive. Additionally, stronger fundamentals, lower debt issuance and reduced default rates are also serving up tailwinds for this asset class.
A report says yields for the so-called ‘junk bonds’ as measured by the ICE BofA US High Yield Index stood at 8.72% on March 21, as compared to 5.95% a year ago. It said high-yield bond spreads over Treasuries have gone up by 1.22 percentage points over the past two weeks.
Of course, Treasury bonds yields themselves have actually gone down over the period amidst an overall flight to better quality while high-yield bonds seem to be headed in a diametrically opposite direction. The signals are clear – investor perceptions of actual credit risk, not just an interest rate risk, have grown in recent times.