US junk bond market loses steam on mounting inflation jitters

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The US junk bond market has begun wavering on rising inflation worries, raising the risk that the powerful rally since the depths of the pandemic in the debt issued by the riskiest corporate borrowers may be coming to an end.

The high-yield bond market has been a shelter for investors seeking to avoid the volatility in stocks and government bonds this year, but these riskier assets have now begun flashing signs of caution.

The additional yield above Treasuries investors can earn for holding junk bonds issued in the US market was essentially flat in May, marking only the second time in 14 months so-called spreads have not narrowed, according to Ice Data Services. The spread rose as high as of 3.42 percentage points earlier in May before easing to 3.29 points on Friday. It had been as low as 3.21 points in early April.

Spreads had declined sharply since the pandemic peak of near 11 percentage points reached in March 2020, as investors…

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