"Fundamentals aren’t that bad," Mike Buchanan, deputy chief investment officer at Western Asset Management, said in a Bloomberg Television interview. "High yield is very attractive right now."

Still, the bad news for creditors may not be over, according to Bank of America Corp. analyst Michael Contopoulos.

Fitch Ratings Service forecast the default rate in the high-yield market will rise to 4.5 percent, up from 3 percent this year. Companies are facing as much as $65 billion of maturing debt that may need to be refinanced over the next two years, according to Fitch Ratings analyst Eric Rosenthal.

‘Underappreciated Risk’

Fundamentals have been worsening for the asset class. For every junk-bond issuer that had its rating boosted in 2015, two have been downgraded, a ratio not seen since 2009, according to data compiled by Bloomberg. Oil, trading close to levels last seen during the global financial crisis, remains an overhang on the market.

"There is an underappreciated risk for the default rate to become elevated in 2016 and 2017 that isn’t currently priced into the market," Contopoulos wrote in a report Monday. "Deflationary pressure continues to hurt corporate earnings, U.S. economic growth has been continually revised lower, and yet the Fed is beginning to tighten policy."

Market woes have seen outflows from U.S. high-yield bond funds running at the fastest pace in more than a year as U.S. junk debt has declined 5 percent, poised for its first annual loss since 2008, according to Bank of America Merrill Lynch indexes.

"The reality for lower rated companies now is that they will have more of a challenge in the credit markets," said Christina Padgett, head of North American leveraged finance at Moody’s Investors Service. "We’ve seen the peak of the credit cycle."
 

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