U.S. Junk-Bond Yields Hit New Low as Investors Undaunted by Risk

(Bloomberg) -- U.S. junk-bond yields fell to a record low Monday as an accelerating economic recovery and the Federal Reserve’s low interest rate policy lead investors to double down on risk.

Speculative-grade corporate bond yields dropped four basis points to close at 3.84%, breaching the previous low set in May, according to Bloomberg Barclays index data.

Investors have made a beeline to new bond offerings this year while low funding costs and a rally in oil prices have also encouraged companies to seek debt financing. Junk-rated borrowers of all stripes sold a record amount of notes in May, and even first-time issuers have met highly receptive buyers: Square Inc. last month raised $2 billion in its debut after raking in $6 billion of orders, and nearly 60 others have tapped the market for the first time this year, according to data compiled by Bloomberg.

The market has rallied despite some incipient concerns among investors that inflation will pick up and undercut the value of bonds. U.S. consumer prices beat forecasts to rise 0.6% in May from the prior month, data released Thursday showed.

Read more: Junk Rally Kicks Into High Gear on Cocktail of Inflation and Oil

Still, the junk-bond index continues to post gains against a backdrop of strong returns for energy companies and broader corporate earnings growth, and the Fed’s decision to begin winding down its credit facility didn’t faze market participants pining for higher-yielding assets.

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