US junk bonds get junkier

US junk bonds or hybrid bonds, which has been investor darling post financial crisis, due to their high yield offering has started getting worse since last year and this year return from them has been lowest in many years, according to data compiled by Bank of America Merrill Lynch (BAML).

Federal Reserve rate hike, coupled with lower energy prices has been a wakeup call for investors as many projects become unviable. By end of 2013, hut for yield has pushed average junk bond yield around 4%, from their crisis peak of 22.5% and also below 2007 boom time average yield of 7% and above.

Scenario, nevertheless has changed, Yields on energy junk bonds are now trading at 14% and average junk bond yield is heading towards 9%, highest level since 2011/12 Euro zone debt crisis and debt ceiling drama.

This should clearly be taken as a warning to emerging market corporates. Lot of corporations will be swimming naked, when the high tide of monetary stimulus will be gone.