We’re going to need a new name for junk bonds. They’re yielding less than 5 per cent for the first time ever (h/t to our own Tracy Alloway):
The 5% yield barrier has proved no match for this Federal Reserve-fueled junk-bond market, which last night reached yet another all-time record-low average yield-to-worst of 4.97%, according to the Barclays US High Yield Index. It marked a new level of market capitulation to central-bank forces as it’s the first time the index has dipped below 5% in its 30-year history (before January the market had never even fallen below 6%). The average price of 107.31 cents on the dollar also marks a record high.
The other widely followed market index, the Bank of America Merrill Lynch High Yield Master II Index, closed last night within a whisper of 5%, at 5.005%, with the average dollar price closing above the 107-cent mark for the first time ever at 107.20.
Suggested names so far for these newly rehabilitated instruments include ex-junk, recycled and … errr… bonds.
We’d also note that, over in the equity market, never-sell-Shell is yielding 5 per cent, Vodafone 5.05 per cent, and Glaxo 4.6 per cent. Now we don’t want to question the market, but: what the hell?
Another distortion to lay at the door of QE liquidity waves pushed out by central banks everywhere it seems — FOBOR in the ascendant.