The roughly $1.6 trillion 'junk bond' market could get more turbulent next year, says Deutsche Bank.
It has been one of the calmest years on record for the roughly $1.6 trillion U.S. high-yield, or “junk-bond,” market, according to Deutsche Bank.
Spreads are the premium investors are paid to own certain bonds above risk-free benchmarks to help compensate for default risks. For “high-yield” HYG, -0.38% bonds, often issued by cash-burning or debt-laden U.S. companies, that rate was last at about 324 basis points above Treasurys TMUBMUSD10Y, 1.629%, near post-2008 lows.
That’s largely due to the “scale of the Covid global QE,” according to the analysts, who put together this chart showing the impact on U.S. junk-bond spreads JNK, -0.37% in “various phases” of quantitative easing, or large-scale asset purchases by central banks, in the past. Bank of America recently tallied the balance-sheet growth of six major global central banks, from the Fed to the People’s Bank of China, since 2008. The total is nearly $30 trillion, but is forecast to slightly recede next year.
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