Do not call it high yield but, for now, higher yield. Easy money and a strong economy pushed junk bond yields below four per cent, levels where the most creditworthy companies in the world borrowed not so long ago.
But in recent weeks reality has set in. In November, total returns on junk bond indices fell one per cent, a rare monthly drop observed in the last two years. These implied yields have jumped as the Fed is expected to begin tightening monetary policy over rising inflation just as fears of another coronavirus variant grip the global economy.
The thirst for yield has since the financial crisis sent terms for risky debt to once-unfathomable places. Despite the turmoil, the overall junk bond yield remains a modest 4.75 per cent. Still, this may be the long-anticipated moment bondholders finally ask to be properly compensated for risk.