markblake

High-Yield Bond Market Performance

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markblake    0

Recently, central banks around the world, such as the Federal Reserve, European Central Bank (ECB) and Bank of Japan, have taken measures to inject liquidity into their economies and keep credit readily available, thereby lowering the costs of borrowing and eating into the returns of lenders. As of February 2016, $9 trillion worth of sovereign bonds, or government debt, offered a yield between 0 and 1% and $7 trillion offered a negative yield, after accounting for expected inflation.

This would normally cause investors to look towards other markets to generate a higher rate of return, but high-yield bond markets have been volatile. Although the value of high-yield mutual funds rose from $100 billion in 2009 to $400 billion in 2014, the total value of the high-yield bond market fell from $1.41 trillion in April 2015 to $1.23 trillion in December 2015. This change is mostly the result of falling commodity prices, especially oil, that have hit the energy sector hard; energy bonds represent 14% of the high-yield market but 36% of the distressed high-yield market, as of 2015. Distressed debt is debt that offers a yield of at least 1,000 basis points over a Treasury bond with the same maturity. The selling off of high-yield debt led junk bond prices to fall by almost 5% in 2015; junk bond prices in the energy industry fell by 20%.

 

 

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