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U.S. Junk Bonds Enter Distress, Spreads Top 1,000 Basis Points

Bloomberg logoBloomberg 3/21/2020 Sally Bakewell and Claire Boston

(Bloomberg) -- U.S. junk bonds entered distressed territory for the first time since the global financial crisis after spreads on the securities topped 1,000 basis points on Friday.

The average spread over Treasuries for bonds in the Bloomberg Barclays U.S. Corporate High-Yield index widened 37 basis points to 1,013 basis points, the highest since June 1, 2009, and a level that is typically associated with distress. The measure has surged from 550 basis points two weeks ago.

a screenshot of a cell phone: High-yield risk premium exceeds 1,000 bps for first time since 2009 © Bloomberg High-yield risk premium exceeds 1,000 bps for first time since 2009

The index move caps a tumultuous week for credit markets as investors flee funds that buy all types of corporate debt. A record $35.6 billion was pulled from investment-grade bond funds in the week ended March 18, and $2.9 billion was withdrawn from high-yield funds, according to Refinitiv Lipper.

Still, some analysts are warning the worst is yet to come for the market amid growing fears about the economic fallout from the fast-spreading coronavirus. The amount of distressed bonds and loans in the market had swelled to $533 billion as of Thursday, more than doubling from two weeks ago, data compiled by Bloomberg show.

Read More: Distressed Debt in U.S. Doubles to $500 Billion in Two Weeks

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