The stampede into junk bonds passed another milestone, showing investors
are casting aside concerns about the health of the U.S. economy for a shot at
padding their pocketbooks.
The Barclays U.S. Corporate High Yield index fell to a record low of
4.97% Tuesday, marking the first time the benchmark tracking debt issued by
weaker U.S. companies dropped below 5%. On Wednesday, it fell to 4.96%. The
yield on the index has lost more than a percentage point this year, in a sign
of hefty demand for income-producing securities. Bond yields fall when prices
rise.
Investors are hungry for returns after several years with benchmark
interest rates near zero, amid central-bank efforts to spur economic growth by
pressing investors to lend and invest in riskier companies and assets. Low
returns on supersafe Treasury bonds and bank savings accounts have spurred a
rush into investments that offer the promise of steady income—at the risk of
principal loss should defaults rise.
"You don't have much alternative right now," said Nick Prala, a
corporate-bond trader at Loomis, Sayles & Co., which oversees about $150
billion in fixed-income assets. "This is what happens when you force
yields to all-time lows and people still need incremental income."
Issuance of high-yield bonds hit records in 2012. This year has started
in the same vein, with high-yield volumes rising at the fastest-ever clip. So
far this year, more than $150 billion in high-yield bonds have been issued in
the U.S., according to Dealogic.
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