Defaults Fall Again, Aiding Rally in Low-Rated Debt

Defaults by low-rated U.S. companies have fallen to their lowest level in 10 months, helping to extend sharp rallies in the markets for junk bonds and floating-rate loans.
Defaults for an index of speculative-grade loans to U.S. companies over the past year fell to 3.15% as of March, according to S&P Global Market Intelligence’s LCD. That is the lowest level since last April and down from the measure’s 10-year peak in September at 4.17%.
The decline in defaults has helped fuel a strong recovery in the prices of markets that initially were hammered by the Covid-inspired flight from risk. The average yield on a Bloomberg Barclays index of junk bonds as of Thursday was 3.9%, around 0.1 percentage point above the record low of February. Yields fall when bond prices rise.
Loan prices are also rising. The share of loans to North American companies trading at less than 90 cents on the dollar was 4.35% as of April 7, according to Refinitiv—down from 5.18% a month ago and a peak of 75.9% during last year’s selloff.
Lower interest rates and investors’ demand for higher yielding credit assets have helped companies buy time to improve operations, said Steven Oh, head of global credit at PineBridge Investments.

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