As investors seek ever-higher yields, risky companies are finding ready buyers for bonds carrying higher interest rates than U.S. treasury securities or blue-chip corporate debt can offer.
Community Health Systems, the Gannett newspaper chain, and other companies whose credit is rated below investment grade have sold $139 billion in bonds from 1 January through 10 February, S&P Global Intelligence reported.
More than $13 billion worth of the bonds are rated CCC or lower, the lowest rating possible before abject default, doubling the previous record amount for the riskiest of junk bonds.
On 18 February, the average rate paid by bonds listed in the ICE BofA High Yield Bond Index – which includes sinking retailers and struggling fracking companies – was 3.97 percent, compared to 1.2 percent offered by 10-year U.S. treasury bonds the same day.
“The demand exceeds the supply” of junk bonds, credit researcher David Knutson at Schroeder’s, a U.K. asset manager, told the Wall Street Journal.
Some investors foresee endangered companies recovering as the U.S. Federal Reserve continues to prop up the bond market, the Biden administration floods the economy with more stimulus money, and the economy recovers from its pandemic-related crash.
TREND FORECAST: It’s a gambler’s game. Embattled companies will still be at risk by their problems that have made them hungry for money, and many will default on their bonds when interest rates rise… as we have forecast.
When the cheap money-pumping stops and the triple-C’s can no longer access funding, they will default. Again, this gambler’s game cannot be played forever.
As the WSJ reported, investors’ ravenous appetite for high yields also has recently driven up prices for commodities such as copper and oil.
Mutual and exchange-traded funds focused on global stocks collected a record $58 billion in new investments during the week ending 17 February, according to data from EFPR Global.
