Junk Bond Spreads Have Tightened Handily Again

penny stack
penny stack

24/7 Wall St. has not been covering the junk bond market as much of late because spreads were in a narrow range for quite some time. That was then. The 10-year Treasury note hit a 2.80% yield in the middle of this week and has only just now find buying support enough to bring it back under 2.8% again. This marked the highest yields since mid-September as the worries are growing all over again about when the bond purchasing will begin to be tapered.

Amazingly enough, yield spreads in junk bonds have tightened. This may be somewhat hopeful ties to stocks challenging record highs again. Defaults have also been very limited of late, giving junk bond investors more confidence that they won't be holding thin air rather than an 8% bond coupon.

What really stands out though is that S&P reported that its composite speculative bond grade spreads have tightened back to 464 basis points. This was just 471 basis points the prior day and 478 basis points just a week ago.

What the implied translation comes to is that junk bonds may be holding up better than treasuries across the board. The spread was also 464 basis points back on November 11. The speculative spread was closer to 500 basis points just in early October.

The SPDR Barclays High Yield Bond (NYSEMKT: JNK) is the key ETF we follow around junk bonds. Its implied dividend yield is over 6% and at $40.48 its 52-week range is $38.21 to $41.95. If spreads were widening out, the performance would be far worse.

We will be spending more time on this matter if the markets warrant it after Thanksgiving.

Filed under: Banking & Finance Tagged: JNK

Originally published