At a breath-taking pace. Default rate spikes. US stocks at record.
Standard and Poor’s default rate of US high-yield corporate bonds – the more appealing moniker for junk bonds – jumped to 4.5% in July, the worst since August 2010.
But no problem. The S&P Distressed High-Yield Corporate Bond Index – comprised of 470 bond issues so troubled that they’re trading at a yield that is at least 10 percentage points higher than the Treasury yield – has rallied 48% since February 12.
This includes the 2.5% swoon on Friday, when some of the hot air was let out.
Default rates blowing out to crisis proportions while institutional investors are piling into distressed junk bonds and drive up prices despite soaring defaults – these are the kinds of out-of-sync movements that our era of interest rate repression, QE, and the relentless search for yield is becoming famous for.
And so, in the same out-of-sync manner, despite rising junk bond prices and falling yields, US high-yield bond issuance in July dropped 32% from June, to $14.9 billion, according to LCD of S&P Global Market Intelligence. For the first seven months of the year, total issuance plunged to $196 billion, down 32% from a year ago.
In Europe it’s even worse. According to LCD, high-yield issuance this year through July plunged nearly 50% year-over-year, to just 27.5 billion.
This post was published at Wolf Street by Wolf Richter ‘ August 1, 2016.