Red-Hot Junk Debt Market Prompts Complacency Fears as Risks Rise

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Junk bond issuance has also been on a tear this year. Fundraising in the US high-yield market is running at its most in five years, up over 40% on the same period in 2025, according to data compiled by Bloomberg. RR Donnelley & Sons Co. priced a note Wednesday at the market’s highest yield of 2026 at over 12%, the latest lower-rated issuer to boost its deal size amid strong investor demand.

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In Europe, Cinven-backed Synlab Ltd sold €370 million ($430 million) of debt last week, in the first Triple C-rated note sale of the year in the currency, and another sign of bullish risk appetite.  

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 “There’s obviously a lot of geopolitical risk out there, a lot of potential for short-term downside risk, but we’re not seeing the makings of a recession,” according to Robert Tipp, head of global bonds at PGIM, who likes high-yield notes. 

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Global junk corporate bonds currently yield nearly 7%, about 0.7 percentage points higher than their year-to-date low, a Bloomberg index shows. But the increases have been more salient in some government yields, and junk credit spreads have widened just two basis points from the end of 2025 to 2.84 percentage points. Notes from Asia where issuance is smaller are leading regional peers in returns year-to-date, generating 2.1%, compared with 1% for US peers and 0.7% for pan-European debt, Bloomberg indexes show.

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“Carry has been a key component of returns, particularly given the elevated all-in yields at the start of the year,” said Hilda Cheong, fixed income investment director at Schroders. “With volatility relatively contained and default expectations moderating, there has been limited offset in returns from spread widening compared to the large income carry component.”

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Still, investors are watching risks including how quicker inflation impacts central bank policy and economic growth, according to Diwakar Vijayvergia, co-head Asia Fixed Income at AllianceBernstein Singapore Ltd. who favors Asian high-yield debt on its improved credit fundamentals. Financial markets could become less orderly if the Middle Eastern conflict drags on, he said.

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In rates markets, signs are already visible. European Central Bank Governing Council member Olli Rehn warned earlier this month that data are starting to point to stagflation in the euro area, while the US consumer price index rose 3.8% in April from a year earlier, the most since 2023. 

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That all raises questions about how weaker companies cope with higher funding costs if growth slows. But, for now, that’s not on the radar.  

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“Fundamental stress is not even a topic that is broadly discussed at the moment” in the junk bond market, according to Citigroup Inc. strategist Steph Choe. That’s a sign of “complacency,” she said.    

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—With assistance from James Crombie, Gowri Gurumurthy and Haslinda Amin.

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(Adds comment by JPMorgan CEO Jamie Dimon)

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