U.S. High Yield Default Rate Rises Tops 2% (JNK) (HYG)

June 26, 2012 7:25 AM EDT
The U.S. high yield default rate rose to 2.2 percent in May, topping 2 percent for the first time since October 2010, according to a new report by Fitch. May defaults, which include mortgage lender Residential Capital, affected a combined $3.9 billion in bonds, bringing the year-to-date default tally to $9.6 billion.

The funding environment for the weakest companies in the high-yield universe remains challenging, noted researchers at Fitch. "Market access began to sour in the summer of 2011, following escalation of the European debt crisis, disappointing U.S. housing and labor market data, and disruptions caused by the U.S. debt ceiling debate. Since then, defaults have been heavily concentrated at the 'CCC' level."

Despite the challenges, a Fitch survey on the financial performance of a large and diverse group of 303 high-yield companies rated 'BB' or 'B' confirms that despite fears of a macro shock due to problems in Europe, U.S. corporate fundamentals remain solid.

ETFs that track the high yield market include SPDR Barclays Capital High Yield Bond (NYSE: JNK) and iShares iBoxx $ High Yield Corporate Bd (NYSE: HYG).

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