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In a sign of rising jitters on Wall Street, the premium investors demand to hold riskier US corporate bonds climbed on Wednesday to the highest level since the start of the year.
The spread on speculative rated corporate credit rose to 4.29 percentage points on Wednesday, from 4.18 percentage points the previous day, according to Bank of America Merrill Lynch data.
The measure, which gauges the difference in yield between company debt and that of Treasuries of the same duration, provides an indication of the perceived risk of holding the debt compared with safe haven assets.
It has not been as high since January 3.
Speculative-rated bonds have been bid-up since the same time period last year as the oil price has rebounded and the economic outlook has brightened.
But both of those factors have begun to fray in recent weeks. US crude oil prices have fallen 11.1 per cent to $48.04 a barrel since the end of last month. Brent crude, the global marker, has shed 8.7 per cent.
Oil prices are important to weaker-rated energy groups, many of which have borrowed heavily to drill for crude. The spread on junk-rated energy bonds has climbed since the end of February to 4.78 percentage points from 4.24 percentage points.
While economists are still expecting modest growth this year, the near-term outlook has also dimmed, something that may weigh on corporate debt.
The Atlanta Federal Reserve’s running forecast pegs first-quarter US economic growth at an annualised rate of just 0.9 per cent, from 3.4 per cent at the start of February. The economy grew at 1.6 per cent in the whole of 2016, the slowest since 2011.