Return Of Risk Aversion Among High-Yield Bond Investors

The widening of the spread between yields on government bonds and yields on high-yield bonds indicates investors are finding it riskier to hold high-yield bonds and want more remuneration for doing so as a result. According to Bank of America Merrill Lynch index data, the extra yield investors demand to hold junk-rated debt instead of government bonds widened by 6 basis points to 726 basis points early last week. The high-yield debt class has stalled at the end of a rally which has seen it climb from a record low of 59.2 cents on the dollar back in December 2008 after the bankruptcy of Lehman Brothers Holdings and American International Group 's (AIG) near failure. This comes as bad news for the leveraged loan market which seems to have reached an inflection point: the S&P/LSTA US Leveraged Loan 100 Index fell to 89.48 cents on the dollar during the week ended January 29, falling from a one-year high of 90.17 cents on the dollar at the peak of an twelve-week rally a week earlier.

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