Junk bonds have seen a record low in yields as strong balance sheets and a changing economy have boosted the market.
Yields in the $10.6 trillion space for the lowest-grade bonds in terms of quality are around historic lows after a tumultuous year that saw corporate America face down the Covid-19 pandemic and come out on the other side with balance sheets looking extraordinarily strong.Most recently, the junk bond sector collectively was yielding 3.97%, according to the ICE Bank of America High-Yield index. That's up from a record low 3.89% Monday.
"Corporations weathered the storm last year and have positioned themselves really well," said Collin Martin, fixed income strategist at Charles Schwab. "Couple that with yield-starved investors going into anything and everything that offer better than a 0% yield, and it's really the perfect storm to see spreads drop to those pre-financial crisis levels."
Like others who spoke about junk, Graff said investors can protect themselves by moving up the quality ladder – single- or double-B companies rather than the riskier C-rated.Part of that story is an interesting reversal in dynamics for the broader bond market.