Cracks Are Appearing in the Junk Bond Market: Distress Ratio Rises in June
Parsimony Investment Research submits:According to Standard & Poor's Global Fixed Income Research ("S&P GFIR"), the distress ratio for speculative-grade corporate bonds rose to 5.9% as of June 15, from 3.65% a month earlier.
The ratio is defined as the number of distressed securities divided by the total number of speculative-grade-rated issues. Distressed credits are speculative-grade-rated issues that have option-adjusted spreads of more than T+1,000. Average spreads have also widened over the past month. The average spread of U.S. speculative-grade corporates was T+549 on June 15, from T+489 a month earlier, according to S&P GFIR. In addition, this data is coming out on the heels of some recent negative high yield fund flows data. We continue to believe that investors should be cautious towards this asset class and we recommend selling (or hedging) your positions in the SPDR Barclays Capital High Yield Bond ETF (JNK), iShares iBoxx $ High Yield Corporate Bond ETF (HYG),Complete Story »