The bond market’s curious signals in corporate debt

The most risky bonds are out-performing investment grade

This is just a guess, but as I recall the Energy sector had a lot of junk bonded companies in it and I am wondering if, due to those companies’ still-positive fundamentals (and valuation), that is playing a role in junk bond out-performance (Junk is, however, bouncing within a downtrend in nominal terms) as the Energy sector attracts funding.

Here is the HYG (junk)/LQD (investment grade) ratio ticking a new high.

Here is the corporate bond market distress index (NY Fed). In this crazy world junk is not as risky as investment grade, which is coming under much distress. Something’s going to have to give. Right?

bond market distress index

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3 thoughts on “The bond market’s curious signals in corporate debt

  1. re; the corp bond mkt distress index, the two red lines are not dissimilar enough to differentiate them.

  2. Looks like the market currently only discounts for higher interest rates (to which junk bonds have a lower sensitivity) and not for higher default risks.

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