Brendan McDermid/Reuters
- Most new bond issues, even those with the riskiest ratings, are oversubscribed, according to Bloomberg.
- Index tracking corporate high-yield debt has dropped to 3.96%.
- Lower yields may spur more speculative-grade companies to enter the market.
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The average yield on US corporate junk bonds has dropped below 4% for the first time on record as investors hunt for stronger returns in an environment of low interest rates, according to a Bloomberg report.
The Bloomberg Barclays U.S. Corporate High-Yield index dropped to 3.96% late Monday, marking a sixth consecutive decline. Bond yields fall as prices rise.
Investors have been scooping up debt that carries low credit ratings as they offer higher yields than bonds in less-risky markets. A major factor driving investors to search for higher returns is the near-zero interest rate policy set by the Federal Reserve.
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Demand for junk bonds has outstripped supply, prompting some money managers to call companies to urge them to borrow instead of waiting for deals, Bloomberg reported Monday.
Yields on issues with CCC grades, widely considered as extremely risky debt, hit a record low of 6.21% on Monday and have outperformed the rest of the market for three straight months, the report said.
Lower yields may move more speculative-grade companies to participate in the market after raising more than $7 billion last week.