Junk Bonds are Starting to Plunge Too
So far all the attention of the selloff has been confined to two major areas: Treasury bonds, and to a greater extent, equity markets. Treasuries have stabilized a bit given all the turmoil in equities, but one of the areas investor need to watch carefully is junk bonds. The more equity-like bonds have been holding up well, but finally started to crack this week as outflows have been strong and the main junk bond ETF had its worst day in a year. The spread to Treasuries is still historically low-346 basis points-which means that there is a lot of room for a correction, though Bloomberg says this is giving fund managers some comfort.
FINSUM : If equities keep falling it seems like junk will fall some. However, the protection of yield, and the fact that earnings and credit worthiness are good should be supportive.
- junk bonds
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