The issuance of junk bonds, otherwise known as speculative-grade debt, has surged a "phenomenal" 98 percent in the last year, according to a new report by S&P Capital IQ.
The unwillingness of European banks to lend to companies has meant these firms have entered the capital markets in search of alternate low cost funding, according to the report.
"It has nearly doubled (from last year)," Claudia Holm, director at S&P Capital IQ told CNBC Monday. "It is 56 billion euros ($75.9 billion) in issuance volume this year and it is the highest on record so far."
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Speculative grade or junk debt refers to bonds that carry a rating of 'BB' or lower from Standard & Poor's or 'Ba' or below from Moody's. They have a higher risk of default compared to investment-grade debt but give a better return for investors as yields are higher. Alan Capper, head of credit strategy at Lloyds Banking Group told CNBC Monday that high-yield debt can be "very vulnerable" to a sell-off in fixed-income assets.
Traditionally the majority of issuance would have been grade 'B' bonds, Holm said, explaining that issuance is now moving down the scale to ever riskier debt. In what is perhaps a sign of the risks involved, she added that the 12-month global speculative-grade default rate was actually increasing as investors were flocking to snap up these bonds.