How a stock-market selloff made junk bonds an unlikely safe haven

Inflation scares haven’t created havoc everywhere.

This chart shows a steadier rise for high yield since May 2020, while the S&P 500 index gains have been choppier. In other words, it’s hard to see a catalyst for the sky to fall for junk bonds JNK, +0.30% HYG, +0.32%, without an unexpected shift in the Federal Reserve’s accommodative policy stance, of another outside shock.

Stocks have shot up during the pandemic as trillions of dollars worth of fiscal and monetary stimulus have been unleashed to help shore up financial markets, companies and households. Corporate bond yields, and spreads, have plunged too.Bond spreads are the level of compensation investors earn above a risk-free benchmark like U.S. Treasuries. Lower spreads imply investors are willing to be paid less to finance companies and other borrowers, even those considered a high default risk.

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