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US junk bond premiums slide to 2014 low

Capital markets

US junk bond premiums slide to 2014 low

The premiums investors demand to hold riskier US corporate debt fell to the lowest level since 2014 on Monday.

The spread on junk-rated US corporate debt — a measure of the extra yield investors earn owning a corporate bond over a US Treasury note — declined to 335 basis points on Monday, matching a post-crisis low set in June 2014, according to ICE BofAML Indices.

The drop in spreads follows fresh inflows to the asset class and accompanies a rally that has seen US stock markets hit a string of record highs. The S&P 500 rose for a sixth consecutive day on Monday, gaining 0.2 per cent.

The rise in riskier junk bond prices, which move inversely to their yields, has propelled returns for the asset class this year. Speculative rated debt, which is considered riskier than investment-grade obligations by the major credit rating agencies, has returned 0.9 per cent this year.

The average yield of a high yield US corporate bond has slid 20 basis points so far this year. At 5.6 per cent, it sits less than 50 basis points above a post-crisis low set more than three years ago.

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