Moody’s Covenant Quality Index, which measures the strength of legal protection in junk bonds, dipped in June to its weakest level since the index was created in 2011. With the Federal Reserve set to hike interest rates, junk bonds could also come under pressure.
Moreover, some investors may no longer be willing to tap into the attractive yield opportunities in the high-yield bond market against a backdrop of growing risks, especially with concerns over energy and commodities ahead of a Federal Reserve interest rate hike.
“That scramble for yield is now experiencing fatigue,” Sam Diedrich, portfolio manager at Pacific Alternative Asset Management, told the Financial Times. “People are looking at the risk reward in yield-based asset classes, and they are finding that valuations are not that attractive.”
SPDR Barclays High Yield Bond ETF
For more information on the speculative-grade debt market, visit our junk bonds category.
Max Chen contributed to this article.