Monday, December 15, 2014

Panic in the Junk Bond Market

The oil bust is exposing cracks in the $1.3 trillion junk-bond market, putting pressure on a key source of corporate financing reports WSJ.

U.S. junk-bond prices have fallen 8% since late June, according to data from Barclays PLC. One-third of that drop has come this month alone, putting the market on track for its worst annual performance since the financial crisis.

And the price decline is spreading beyond just the energy sector. While much of the stress has been in the energy sector on the heels of the sharp decline in oil prices, lately the woe is spreading across the junk market.

U.S. high-yield bonds have returned just 0.78% this year, including price action and dividends, according to Barclays, putting the debt on track for its worst showing since 2008. Junk bonds returned 7.44% last year and 15.8% in 2012, Barclays said.

The bond market is not the place to be right now, avoid all bonds, including Treasury securities.

The decline in energy sector bonds is chiefly about falling oil prices. However. the entire bond market sector is vulnerable to interest rate pressures,

There might be an initial flight to the "safety" of US Treasury securities, but it will be a trap.

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