Junk bonds have been a bright spot for bond investors in a miserable 2023. They also look riskier than they did earlier this year.
Junk bonds have stood out. Appetite for riskier deals increased this year as the economy’s resilience amid historically high interest rates suggested companies would keep defaults at bay. The recent record low maturity of high-yield bonds, now at just under five years on average compared with more than eight years for investment grade, is a selling point for investors who have favored short-term investments this year amid rate uncertainty.
“I love high yield when it’s cheap but everyone hates it,” says Peter Tchir, the head of macro strategy at Academy Securities. “Now people seem to like it too much.” Despite the stiffening headwinds, spreads—or the premium charged by investors to hold junk-rated debt over Treasuries—have narrowed, suggesting little anxiety in the market regarding potential defaults. It has hovered largely under 4 percentage points since mid-July, well below the peak of 5.22% points observed during the bank tumult this year and around the 4.