After this month's market gyrations sent high-yield bond prices sharply lower, some analysts believe the air has come out of the market.
"The bubble in 'junk' bonds appears to be deflating," John Higgins, an analyst at Capital Economics, said in a note Tuesday. "The spread over Treasurys of BBB-rated, 7-10 year bonds is currently close to its average of the past quarter of a century – the same could not be said, at least until recently, for the spreads of bonds lower down the credit rung."
The spread between B-rated bonds and Treasurys had fallen to around 320 basis points in June, nearly 200 basis points below its 25-year average and not too far away from the quarter-century period's lowest-ever level of 250 basis points, he noted. But the spread has now climbed to around 430 basis points, he added.