The Federal Reserve could add more pressure on the junk bond market. Fed Chair Janet Yellen has stated that higher rates are coming this year, and analysts expect more selling as rates go higher. However, investors’ renewed appetite for junk bond ETFs could be a sign markets do not expect the Fed to raise rates in the near-term.
According to Fitch Ratings, the default rate among U.S. energy companies has accelerated to 4.8%, its highest level since 1999, up from 3.3% in August. Additionally, exploration and production companies are defaulting at an even higher rate of 8.5%, with default volume at its highest level in five years. In contrast, the broader U.S. corporate default is still a relatively low 2.9%. [Energy Sector Pressures Junk Bond ETFs]
SPDR Barclays High Yield Bond ETF
Tom Lydon’s clients own shares of HYG and JNK.