Junk bonds slump as Morgan Stanley sees bigger unwind ahead
Cost of protecting speculative-grade bonds against default in credit-default swap market climbs to highest level since July 6
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IT COULD be the beginning of the end for an 18-month rally in junk bonds. A high-yield bond fund run by BlackRock Inc slumped on Thursday to its lowest level since March, a day after Morgan Stanley warned that a correction may already be underway. The cost of protecting speculative-grade bonds against default in the credit-default swap market climbed to its highest level since July 6. Investors demanded the most extra yield in almost a month to buy junk debt, according to a Bloomberg Barclays index fixed late on Wednesday.
Morgan Stanley added its voice to a growing chorus of scepticism surrounding debt valuations, with Pacific Investment Management Co writing in a report released on Wednesday that investors should pare relatively expensive assets such as corporate bonds in favour of safer investments such as Treasuries. Echoing that view, T Rowe Price Group Inc's Sebastien Page, head of asset allocation, said: "Everything is expensive."
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