High-Yield Yields Rise as CCC Debt Shows Sharper Credit Stress

U.S. high-yield bond yields have risen in October, while spread widening has been concentrated in CCC-rated and lower debt rather than the broader high-yield market.

The ICE BofA U.S. High Yield Index’s effective yield reached 8.11% at the Oct. 8 close, up from 7.22% one month earlier. The index covers below-investment-grade corporate bonds rated BB or lower.

The index’s broad option-adjusted spread was 315 basis points on Oct. 8, below its 346-basis-point level in March. Credit spreads measure the additional yield investors demand over comparable U.S. Treasury securities.

Stress was more pronounced among the weakest-rated borrowers. The CCC-and-lower spread reached 1,252 basis points on Oct. 8, up from 807 basis points on Sept. 30. A wider spread indicates that investors are demanding more compensation for holding that debt.

The BB spread, by comparison, rose to 194 basis points from 179 basis points over the same period. The difference between the two segments points to pressure concentrated in the riskiest part of the high-yield market rather than a uniform deterioration across all speculative-grade bonds.

The 10-year Treasury yield was 4.13% on both Oct. 5 and Oct. 6. Treasury yields provide a benchmark for corporate borrowing costs, so changes in government bond markets can affect the broader high-yield market.

The market backdrop was also examined in earlier analysis of Treasury yields and high-yield debt.