Junk bond yields are quickly jumping ahead of U.S. Treasury yields. The disparity may signal a good time to enter exchange traded funds that track high-yield bonds if investors stomach the risk.
According to Martin Fridson, global credit strategist at BNP Paribas Asset Management, yield spreads between corporate junk bonds and Treasuries hit a new recent high, reports Murray Cooleman for Barron’s.
For instance, the option-adjusted spread on the BofA Merrill Lynch High Yield Master II Index ended at 7.54% on Tuesday, which was a little below the 7.58% high last observed on Dec. 1, 2009.
Fridson mentioned that this poses an excellent entry point into junk bonds, given that an investor is “absolutely convinced” we aren’t heading for a recession. [High-Yield ETFs Rally but Bearish ‘Crossover’ Looms]
Based on an analysis of the yield spreads, Fridson calculates that there is a 63% chance of a recession.