Higher interest rates: investors pounce on junk bonds

In the United States, the bonds, financial weak companies again. The so-called High-Yield Bonds, high-yield bonds, have provided, according to the data provider

Higher interest rates: investors pounce on junk bonds

In the United States, the bonds, financial weak companies again. The so-called High-Yield Bonds, high-yield bonds, have provided, according to the data provider Ice Data Services, a unit of exchange operator Intercontinental Exchange (ICE), in July, the highest yield since 2011. As the Financial Times reported, have led to rising prices associated with falling yields over the past month to earnings of this asset class, from 4.78 percent.

Markus Frühauf

editor in the economy.

F. A. Z. Twitter

in order for the investors to accept higher risks, although the Corona of a crisis in the United States is not at all subsided. In addition, many companies with a weak credit rating (credit Ratings below "BBB– threatening") to get into payment difficulties, should be taken in the American Federal States, strict quarantine measures and parts of the economy are paralyzed.

As Chesapeake Energy, a pioneer in the Fracking of shale oil and gas had to at the end of June, the protection of creditors, apply for. The shale gas producers were hit particularly hard by the oil price decline in the spring. The investors from the bankruptcy risk of not quenching, is due to the very low interest rates. American bonds from companies with good Investment-Grade Rating from throw currently less than 2 percent.

risk premium drops significantly

While the returns of high-yield bonds, which are referred to in the market casually also known as "junk bonds" are decreased, again. In July, the average rate of return, as measured by the Index of ICE BofA US High Yield declined from 6.85 to to 5.46 percent. However, you can still with these titles, still 3.5 percentage points higher return than the securities of investment-worthy companies.

The Confidence of the investors is also based on the expectation that the American Central Bank, the Federal Reserve (Fed) will provide the economy and the financial markets continue to be generous with liquidity. Just the High-Yield Bond market has prepared for you already longer worry, because here is the danger of a speculative Exaggeration has been detected. In the Wake of the Corona-crisis, the Fed has also begun to support the high-yield market by purchasing from this asset class in exchange-listed index funds (Exchange Traded Funds; ETF's).

year-on-year volume exceeded

The market for American High-Yield bond has a volume of 1.5 trillion dollars. Of these, 14 percent is allocated to energy companies, and in particular the shale oil Fracker. Is accompanied by the demand of the investors from high-emission activities. Until the end of may, U.S. high-yield bonds in a volume of 153 billion dollars were issued. Thus, the previous year's volume was exceeded by 69 percent.

Updated Date: 03 August 2020, 16:20

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