The junk-bond market is sending a bullish signal for the global economy in 2013, with investors in US high-yield securities earning higher returns so far this year than those who have bought investment-grade debt.
High-yield bonds are an acute barometer of risk appetite and rises in their prices have often signalled a turn in sentiment. With yields for US junk bonds now below 6 per cent, investors are indicating they believe the global economy is on firmer footing and the risk of a financial crisis is diminishing.
However, the appeal of junk bonds also has been boosted – unduly, in the eyes of some – by the overall low level of interest rates. Yield-hungry investors have few alternatives, and inflows into junk-bond funds last week reached their highest levels since mid-September, according to EPFR.