Global junk bond issuance is at record highs this year—and thus at the greatest danger should yields start rising.
Companies around the world have issued $254 billion in high-yield debt this year, a number that includes $130.6 billion from the U.S., according to the latest numbers from Dealogic.
Global issuance is up a stunning 53 percent from the same period in 2012 and has accounted for 9 percent of the total deals in the debt capital markets space—also a record and fully one-third higher than last year's pace.
The U.S. issuance has increased 24 percent over the previous year. Record issuance also has come from the U.K., China, Russia—and debt-plagued Italy, which despite being at the center of the European sovereign debt crisis has seen $7 billion hit the junk bond market this year, Dealogic said.
The Standard & Poor's 500has surged nearly 16 percent this year, and the high-yield market has followed. The Barclays U.S. Corporate High Yield Index returned 4.75 percent through April.
But with investors beginning to fear that the Federal Reserve may stage an early exit from its monetary stimulus programs, fears are growing that junk bonds could take a hit.
"On the surface, things look pretty good in the high yield market," Citigroup analysts said in a report. "Digging a little deeper, however, we see some troubling signs."
All that supply is beginning to take a toll on the secondary market—where those who buy the bonds from issuers go to trade them—and there are signs that demand is waning.
What is a junk Bond? A colloquial term for a high-yield or non-investment grade bond. Junk bonds are fixed-income instruments that carry a rating of 'BB' or lower by Standard & Poor's, or 'Ba' or below by Moody's. Junk bonds are so called because of their higher default risk in relation to investment-grade bonds.
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