While most investors were mostly preoccupied by the strong rallies in the stock markets and exchange traded funds (ETFs), the bond market has enticed investors with high bond yields.
Standard & Poor’s commented that issuers are favoring the high-yield bond market over the leveraged loan market, with 86% of speculative-grade debt in bonds during the first nine months of the year compared to 45% in the same period last year, reports Tess Stynes for The Wall Street Journal.
Issuers are seeking the less restrictive terms and longer maturities offered in bonds. Though, high-yield debt does come with higher financing costs when companies try to refinance. (To read more about using bond ETFs, go here).
Some analysts fear that a new bubble may be forming on Wall Street as investors chase down returns, and some are warning that the hike in bond prices may roll back if the economy stumbles and investors run back to safer investments, writes Jack Healy for The New York Times. Struggling companies would then be forced to pay higher rates to take on more debt or refinance old bonds. (Read more about protecting yourself from bubbles here).