Distress signals: US junk bond spreads top 500 bps, a first since 2020

Spreads on US junk-rated corporate bonds, an important gauge of risk that signals higher defaults when it increases, surpassed 500 basis points for the first time since November 2020.

The figure, which measures the extra yield investors demand to hold the debt instead of US Treasuries, increased 31 basis points on Thursday to 508 basis points, according to the Bloomberg US Corporate High Yield index.

Junk spreads have surged 100 basis points the past two weeks as the Federal Reserve’s efforts to tame inflation fuel concerns that the central bank will push the economy into a recession.

Higher premiums make it more expensive