Wednesday, March 25, 2020

"Ready for a 10% Default Rate For Junk Bonds?"

"Default Dear Brutus is not in our stars, But in ourselves, that we are underlings."
—not quite Julius Caesar, Act 1, scene 2,
From CNBC, March 20:

Junk bond default rate to triple within 12 months, S&P says
  • High-yield default rates are likely to rise to 10% over the next 12 months because of the coronavirus crisis, according to S&P Global Ratings.
  • S&P said a protracted recession could make the numbers worse.
Companies holding low-rated debt are in for a brutal stretch as the economy heads into a coronavirus-induced recession, according to a forecast Friday.

S&P Global Ratings said the default rate for high-yield, or junk, bonds is heading to 10% over the next 12 months, more than triple the rate of 3.1% that closed out 2019.

“The current recession in the U.S. this year is coming at a time when the speculative-grade market is historically vulnerable to a liquidity freeze or an earnings drop,” Nick Kraemer head of S&P Global Ratings Performance Analytics, said in a statement....

The SPDR Bloomberg Barclays High Yield Bond ETF (JNK) has fallen 21% since February 20th.
And it still only yields (a supposed) 6.71%, three years of taxable current income to cover the capital loss.