Taking Corporate Bonds’ High Yield Temperature

Buyers have been generally flooding the high yield corporate bond market recently, despite heightened fears about increasing defaults, credit rating downgrades, and fundamental concerns in the wake of the coronavirus crisis.

Since the Federal Reserve rolled-out massive measures in late March to help support the economy and financial system, the performance of certain high yield, fixed-income exchange-traded funds (ETFs) have turned decidedly positive.

(Click on image to enlarge)

High yield corporate bond etfs rise

To date, shares of the iShares iBoxx High Yield Corporate Bond ETF (NYSEARCA: HYG), for example, have soared around 16.3% since hitting a low of US$68.63 on March 23, with assets having reached more than US$19.25bn. 

Similarly, prices on the SPDR Bloomberg Barclays High Yield Bond ETF (NYSEARCA: JNK) have increased about 16.35% over the same period to around US$98.40 intraday Thursday.

The lion’s share of the fixed-income securities underlying these ETFs are mainly U.S. junk bonds residing in the media, healthcare, telecommunications, and oil and gas sectors, and many in the market fret further COVID-19 inflicted downgrades and defaults will likely rise in at least some of these industries.

S&P Global Ratings recently noted that with the rapid spread of the coronavirus outbreak, and the effects on domestic consumption from the containment measures implemented to prevent it, potential credit rating downgrades on firms in the media and entertainment sector have risen.

Among the media-related, junk-rated issuers on its CreditWatch/Negative Outlook list are:

Issuer Ticker Rating
Hilton Grand Vacations NYSE: HGV BB+
Hilton Worldwide NYSE: HLT BB+
Wyndham Hotels & Resorts NYSE: WH BB+
Cinemark Holdings NYSE: CNK BB
Marriott Vacations Worldwide NYSE: VAC BB
Live Nation Entertainment NYSE: LYV BB-
MGM Resorts NYSE: MGM BB-
Studio City Co   BB-
Mattel Nasdaq: MAT B+
Metro-Goldwyn-Mayer   B+
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DISCLOSURE: AUTHOR SECURITY HOLDING: NO POSITIONS

The author does not hold any positions in the financial instruments referenced in the materials provided.

The analysis in this material is ...

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