Is the market made by Michael Milken turning full circle?

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High yield debt is becoming more investment grade

The writer is a bond portfolio manager at Barksdale Investment Management and editor of The Credit Investor’s Handbook Back in the 1980s, when Michael Milken helped foster an appetite for higher risk-reward corporate bonds, junk bonds became the fun asset class with volatility and bankruptcy workouts featuring sharp elbows and big egos.

Lower-rated bond issuance subsequently declined, a trend that accelerated recently with the quantitative tightening era as interest rate rises meant less need to search for yield. CCC-rated bonds accounted for only 6 per cent of the last 18 months of high-yield bond issuance. So if you’re waiting for a huge default wave to trash the high-yield bond market, you could be disappointed, as the low percentage of CCC issuance over the past few years is likely to cap distress.

 

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