A look into the word of Junk Bonds - ANZ

Analysts at ANZ explained that the global junk bond market has had an impressive run. 

Key Quotes:

"However, it hasn’t been an entirely smooth ride. On two occasions this year (March and August) US corporate high-yield bond yields have jumped 40-60bps only to resume their downward trend. But at 3.5% today versus over 8% in early 2016, it’s been quite the rally, and some are nervous that it may not be sustainable."

"The traditional support factors remain in place: US growth is strong, as are equities, and volatility is low. 

However, oil prices are rising and central banks are ever-so-cautiously sounding a little more hawkish. The market is an obvious first stop should there be a more generalised rise in yields and an associated spike in risk aversion. (These same yields hit nearly 20% in 2008)."

And of course it isn’t only the US high-yield corporate market where spreads are looking unusually tight: emerging market bond spreads are extremely compressed too. 

That said, there are exceptions: Venezuela’s 3-year bond yield is over 100% on expectations of a looming default. Seems some risks are still beyond the pale."