High Yield Bond Rates Fall

Through February 10, more than $13 billion of debt with a rating of CCC or lower has been issued, twice the previous record pace at this point in the year. But what is surprising is that the average YTM for the ICE BofA High Yield Index is only 3.97 percent. While this represents a 2.77 percent risk premium over current U.S. Treasury rates, only three years ago the 10-year Treasury yielded 3.23 percent. The current low, or even negative, yields for safe investments has investors chasing riskier investments to increase returns. Another reason for the low yields on junk bonds seems to be that investors believe the COVID-19 slowdown is temporary and the economy will recover quickly as vaccines are more widely distributed.