“$35 oil is one factor that was hard to predict in advance,” said Richmond, whose prediction of a 6.5 percent gain in 2015 failed to materialize. “We were negative on the high- yield market in 2014 and then turned constructive late in the year after the initial selloff, which turned out to be the wrong call.”
The analysts at Barclays had estimated junk bonds would return as much 5 percent in 2015. “All of those events have created volatility in the credit markets and put pressure on spreads,” said Marco Baldini, the London-based head of European corporate and sovereign, supranational and agency syndicate at Barclays.
Bank of America Corp. analysts led by Michael Contopoulos counter high-yield bond “prices haven’t fallen enough to entice distressed investors” and the securities “will suffer.” The lender forecast that junk debt may lose as much as 3 percent this year, according to a Nov. 24 report to clients.
Still, outside the slumping commodities industry, the default rate is half of its historical average. And junk-bond yields are the most since 2011, according to Bank of America Merrill Lynch indexes.
“We thought oil could drive volatility into 2015, but we didn’t expect it to continue to be a key driver all year long,” said Gross. “We don’t think high yield is going to widen dramatically or have significant price losses. There is not a whole lot of room to go further down.