U.S. Junk Bonds Drop To Lowest In Over Two Years Ahead Of Fed Meeting

• The price of a major U.S. junk bond exchange traded fund (ETF) fell to its lowest in over two years this week, as concerns over the impact of a hawkish Federal Reserve on the economy led investors to pull out of riskier assets. BlackRock’s iShares iBoxx $ High Yield Corporate Bond ETF (HYG.P) fell 0.4% to trade $78.23 a share on Monday, Refinitiv data showed - the lowest price since April 2020. 
• Meanwhile the yield spread on the ICE BofA U.S. High Yield Index, a commonly used benchmark for the junk bond market, rose to 405 basis points on Monday from 393 bps last week, widening to its highest since March 15, when the spread hit a 15-month peak at 421 bp. A widening of the spread of junk bond yields over Treasuries is an indication of risk aversion in financial markets. 
• U.S. credit markets saw some respite in March, but the relief proved to be short-lived as uncertainty around the U.S. central bank's ability to engineer a soft landing for the economy continues to weigh on risky assets. 
• The Fed is expected to announce a 50-basis point rate hike this week as well as the launch of quantitative tightening (QT) - the reversal of a bond-buying program aimed at supporting the economy during the pandemic. 
• Concerns over its tightening monetary policies have led to a sell-off in U.S. Treasuries this year which has also weighed on riskier assets such as U.S. corporate bonds.

(Source: Reuters)