Well, not markets. Fed-managed paper exchange.
By Wolf Richter | 4 December 2020
WOLF STREET — Never mind the Pandemic or the huge blob of corporate debt that even the Fed publicly fretted about before the Pandemic, only to do everything it could to fatten up this huge blob of corporate debt even further during the Pandemic. And never mind the credit risks – the risk of default and bankruptcy – that this corporate debt poses. And never mind that entire over-indebted industries saw their revenues collapse. Come to mind airlines, cruise lines, mall retailers, mall landlords, restaurant chains, hotels, hotel landlords, movie theater chains, or of course the entire shale oil-and-gas sector. And just don’t worry about the risk of inflation and the existence of inflation. Just never mind any of this, because, I mean, it just doesn’t matter: Junk bond yields have dropped to a record low.
To wit: the effective yield of the ICE BofA US High Yield Index, which tracks US-traded junk bonds across the junk-bond spectrum, fell to 4.61% at the close on December 3, the lowest in history. As bond yields fall, bond prices rise:
The surge in yields back in 2015 and 2016 was largely the result of the shale oil-and-gas industry getting ripped apart by the Great American Oil Bust. The price of WTI crude oil had plunged from $110 a barrel in mid-2014 to below $30 a barrel in early 2016, triggering a wave of defaults and bankruptcies. The Fed, which had just started raising rates in December 2015 with its first tiny rate hike in a decade, started worrying about contagion and halted the rate hikes for a whole year, during which the junk-bond market began to settle down. […]