It’s the worst October for U.S. junk bonds since 2008.
This month is typically a good one for high yield, but October is on track for the biggest loss since December 2015 as equity volatility, earnings and trade worries weigh.
U.S. high yield’s 1.81 percent drop so far this month is exceeded only by the 1.87 percent decline for global high yield, making it the second-worst performer of all the main bond market indexes. October has been positive for high-yield bonds in every year since 2008, when the market tumbled almost 16 percent in the month.
The equity and oil slump, VIX jump and rising concerns about trade wars, Brexit and Italy all dented risk appetite in October.
High yield is still up 0.72 percent year-to-date, well short of the 2.57 percent gain it had racked up by the close on Sept. 28. CCC rated bonds are up by 3.07 percent, compared to a 6.24 percent return at the end of last month. Investment grade bonds have lost 3.5 percent so far this year and are down 1.2 percent this month.
The average yield jumped to almost 7 percent -- from about 5.5 percent at the start of this year -- the highest since July 2016. CCC yields crossed the 10 percent mark for the first time since January 2017. This makes it more costly for lower-quality companies to raise new funds and pay down debt.
While junk bond yields rose and returns plummeted, there has been no panic selling. Some investors see this as a buying opportunity. Firm credit fundamentals, low default rates and a steady economy are critical factors favoring junk bonds.