As the dust settles after a three-day rout in global junk bonds, it turns out half of the market was relatively unscathed.
Spreads on the largest group of bonds in the just-below-investment grade BB category, which accounts for 50 percent of the Bloomberg Global High Yield Corporate Bond Index, merely wobbled. To see more damage, you need to go one ratings category lower.
Notes rated B saw their risk premiums widen 40 basis points to 3.65 percentage points at the start of November, according to the index. This group comprises 36 percent of the index, the second-largest category of bonds. BB-rated bond spreads widened just 14 basis points, to 2.17 percent.
By contrast, bonds with investment-grade BBB ratings saw their spreads narrow as they benefited from a flight to quality.
“Repricing has occurred almost exclusively at the lower end of the ratings spectrum,” JPMorgan Chase & Co. strategists led by Daniel Lamy wrote in a note to clients Monday.
Their conclusion: the junk-bond selloff was about correcting mis-priced credits “rather than a rise in systemic risk.”
For some of the lower-rated bonds, the slump is not over. Altice NV’s B-rated debt fell Tuesday even as a gauge of risk measuring credit-default contracts stabilized.
— With assistance by Neil Denslow