Riskier speculative-grade debt and bond-related exchange traded funds have retreated over the past year and are trading at relatively attractive valuations. However, rising corporate default rates could bar the asset category from a full recovery.

Junk bonds have rebounded alongside the equities market from the February lows. Year-to-date, the SPDR Barclays High Yield Bond ETF (NYSEArca: JNK) rose 1.7% and iShares iBoxx $ High Yield Corporate Bond ETF (NYSEArca: HYG) gained 2.2%.

The speculative-grade debt market, though, may have a hard time regaining lost ground ahead as credit risk comes back to the forefront. According to ratings agency Standard & Poor’s, more companies have defaulted globally so far this year than during the start of any year since 2009, reports Josie Cox for the Wall Street Journal.

The S&P’s findings mirror Moody’s expectations that corporate defaults could hit its highest rate since the financial crisis, led by the energy and mining sectors.

β€œIn the past six years, the global economy has enjoyed a benign default environment as accommodative monetary policies have fueled the corporate debt market with abundant liquidity, allowing many low-rated issuers to refinance when needed,” according to a Moody’s report. “The party is likely coming to an end soon as the global default rate is expected to approach the historical average mark by the end of 2016.”

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