17.4 C
Munich
Tuesday, August 3, 2021

Junk-Bond Rally Pulls Yields Below Inflation

Must read

While you were sleeping: How Canada performed at Tokyo Olympics Monday, Tuesday – National

Canadian athletes managed to qualify for further events in track and field at the Tokyo Olympics Tuesday, but missed out on medals in the...

U.S. Stock Futures Tick Higher

Aug. 3,...

Tesla Rival Li Auto Launches $2 Billion Hong Kong Share Sale

Electric-car maker Li Auto Inc. kicked off a near-$2 billion stock offering in...

Investors’ headlong embrace of risk passed a new milestone in recent sessions: The return that investors receive for investing in the riskiest U.S. companies fell below inflation.

A rally in corporate debt rated below investment grade has pushed yields to record lows around 4.57%, according to ICE Bank of America data through Thursday, while consumer prices rose 5% in May compared with a year earlier. That marks the first time on record junk-bond yields have dropped below the rate of inflation, according to Bespoke Investment Group.

The move upends the conventional logic of investing in bonds, which are typically prized for protecting investors’ money. Junk-rated companies include those most likely to miss interest payments or go bankrupt. Buying bonds that yield less than inflation means locking in a loss. 

At the same time, stimulus measures and the strength of the recovery have left the economy in an unusual place, with many expecting a rapid reversion toward the pre-pandemic era of slow and steady growth. In that scenario, inflation will moderate as the pandemic’s anomalies fade, leaving junk-bond yields again above the rate of price increases. 

Gennadiy Goldberg, U.S. rates strategist at TD Securities, said the inversion indicates investors are chasing returns far and wide in a low-rate environment, even in riskier places.

More articles

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Latest article

While you were sleeping: How Canada performed at Tokyo Olympics Monday, Tuesday – National

Canadian athletes managed to qualify for further events in track and field at the Tokyo Olympics Tuesday, but missed out on medals in the...

U.S. Stock Futures Tick Higher

Aug. 3,...

Tesla Rival Li Auto Launches $2 Billion Hong Kong Share Sale

Electric-car maker Li Auto Inc. kicked off a near-$2 billion stock offering in...

Tesla Rival Li Auto Launches $2 Billion Hong Kong Share Sale

Electric-car maker Li Auto Inc. kicked off a near-$2 billion stock offering in...