HY Index on the Verge of its Biggest Monthly Fall Since the Pandemic

The Bloomberg US Corporate HY Bond Index is already down 1.23% this month, its largest monthly fall since March 2020 when the pandemic began. At the current fall, this would see the index headed for its worst January performance in six years with US Treasury yields spiking 34bp till date in 2022. Bloomberg notes that about half of the index is rated BB, the rating tier with most duration, with bonds in this category falling by over 1.7%. At the current rate, BB rated debt will have the worst January on record since 1983. However, the lowest tier, CCC debt is down 0.53%, performing the best with energy producers supported by the rally in oil prices. HYG, the largest junk bond ETF suffered its third largest one-day outflow of $1.3bn on Tuesday, also the worst since February 2020. Todd Rosenbluth, head of ETF and mutual fund research at CFRA said that the expected Fed rate hikes have “made bond investors more skittish. They’ve sought safer-haven assets and are less willing to take on risk tied to interest rates as well as tied to the credit market.”

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