June 4, 2021
Junk bonds have been riding the rally like many other financial sectors since the collapse at the start of the pandemic. Since the recession, high-yield bonds have been what investors have used to get excess returns while avoiding volatility, but the excess yield investors are looking for is being erased. Yields have been flat in May, meaning the spreads between treasuries are narrowing. Money is flooding out of junk bonds as investors are worried about Taper Tantrum 2.0—when the Fed would pull back bond-buying in a stimulating economy. Rising inflation hasn’t been a concern for junk bonds, which are insulated compared to much other fixed income, but the Fed response could be a huge problem for high yield bonds.
(New York), Financial Times
FINSUM + Magnifi: This is difficult because you need both high inflation and a Fed overreaction. If you think the Fed will sit calmly, you may benefit from junk bond exposure.
Other news today: These are the Best Value Stocks in a Hot Economy and Biden’s Got Another Big Tax Surprise for the Wealthy
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