While high-yield speculative-grade debt offer attractive income opportunities, the asset category is not without its risks. U.S. energy companies, notably the nascent shale oil industry, has fueled junk debt, but the depressed crude oil prices has increased default risks. Fixed-income investors are demanding a yield of 19.6% to hold U.S. junk-rated energy bonds after borrowing costs crossed 20% for the first time ever this month, Bloomberg reports.
“From a fundamental standpoint the market’s in a wait and see mode and to a large extent remains at the mercy of oil,” Adam Sarhan, CEO of Sarhan Capital, told CNBC. “As goes oil, so goes the other risk assets.”
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Max Chen contributed to this article.