Billionaire investor Carl Icahn has long warned about the dangers of the high-yield market. Now, those sentiments are being echoed by a top strategist at a major bank who called the market for riskier bonds a "slow-moving train wreck."
In an interview on CNBC's "Fast Money," Michael Contopoulos, head of high-yield strategy at Bank of America, called high yield credit a "big, big problem," and laid out the reasons why a turn in the credit cycle is currently underway.
The dramatic rout of commodity prices is having a spillover effect on corporate bonds, especially those linked to energy. Last week, ratings agency Standard & Poor's said the speculative-grade corporate default rate jumped to 2.5 percent in September, its highest level since 2013. That figure is expected to rise to nearly 3 percent by the middle of next year, S&P added.
"You're going to see defaults pick up," Contopoulos said. "This isn't just a commodity story, this isn't just metals and mining and energy. It's broader than that. And the fundamentals are as poor as we have seen them."
The iShares High Yield Corporate Bond ETF has dropped nearly 5 percent in the past month, and is down more than 10 percent so far this year. On Friday, the ETF hit a 52-week low on an intraday basis.