Additionally, Liang points out that credit risk in the junk bond market is low as many new issaunce has been refinancing related instead of the traditional leveraged buyout or merger and acquisition deals. Moody’s 12-month global speculative-grade default rate was 2.3% in May, down from 2.8% for the same time last year. The ratings agency expects default rates to dip to 2.1% by the end of the year.
“Refinancing is nice, low risk use of capital, but also it turns out the maturity profile of the market,” Liang added. “This is being reflected in the low default rate we see in the high-yield market. That low default is probably here to stay for a couple of years.”
For more information on the bond market, visit our bond ETFs category.
Max Chen contributed to this article.
Full disclosure: Tom Lydon’s clients own shares of HYG and JNK.