The riskiest part of the corporate bond market is off to a strong start in 2019. Investors, however, might not want to get too comfortable.
Instead, this could well be the year that "fallen angels," or former investment-grade debt that gets downgraded to speculative, shapes up as one of the more compelling fixed income stories and poses the greatest risk to a sector that has attracted considerable levels of investor cash.
Coming off a brutal 2018, high-yield bonds — junk, in the market vernacular — have started the new year with a bang. A popular play in the sector, the $14.8 billion iShares iBoxx $ High Yield Corporate Bond exchange-traded fund, has been one of the leaders in attracting investor cash, pulling in $1.18 billion in inflows this year.
This year's rebound comes off a December when the high-yield market dried up. Low-rated companies stopped issuing debt amid a freeze in market activity and a big drop in the stock market that reflected a general risk-off attitude.
Bond market pros are warning, though, that the more constructive atmosphere looks to be temporary and that worries over corporate debt will last through the year.