Junk bonds are trading within a half cent of face value for the first time since June 2007 in a sign investors are convinced the economic recovery and profit growth will keep the neediest borrowers from defaulting.
High-yield bonds rose to 99.67 cents on the dollar, up from a low of 54.78 cents in December 2008, according to Bank of America Merrill Lynch index data (the chart below is the BarCap High Yield index). The debt last reached par on June 11, 2007, just before credit markets began to seize up as losses on subprime mortgages spread.
JPMorgan Chase & Co. and Morgan Stanley Investment Management are recommending investors buy the debt, even after it returned 86 percent since the market bottomed in 2008. Rising profits are making it easier for companies to meet payments, leading Moody’s Investors Service to raise its ratings on 143 junk bonds this year and downgrade 105, data compiled by Bloomberg show. Last year it upgraded 229 and lowered 902.