US corporate bonds sold by low-rated companies have slumped in price, signalling lenders’ intensifying worries that scorching inflation and higher interest rates are beginning to hit borrowers most vulnerable to an economic downturn.
Bonds assigned a triple C rating or below, the lowest rung on the ratings ladder, have posted a negative return of 2.8 per cent since the end of April, according to an Ice Data Services index. The performance starkly contrasts a 1.3 per cent gain for debt rated double B, the highest quality segment of the junk bond market.
The sharp divergence follows a period of relative outperformance for triple C rated debt, with the change reflecting investors’ souring mood over the outlook for the American economy and the health of US companies that are already beginning to buckle.