Corporate bonds

UPDATE 2-Euro corporate bonds set for worst weekly loss since March 2020

(Adds US debt details)

June 17 (Reuters) – Euro corporate bonds were set for their biggest weekly total loss on Friday since the peak of market turmoil triggered by the COVID-19 pandemic in March 2020, as spreads on U.S. junk bonds were at their highest since November 2020.

A very volatile week in which global interest rate expectations were revised upwards given high inflation, followed by several central bank meetings, triggered huge increases in yields in bond markets .

High-yield bonds saw the largest outflows since March 2020, BofA’s weekly flow report showed on Thursday.

The ICE BofA Euro Corporate Index, which tracks investment grade corporate bonds, is down 2.2% in total return terms so far this week, the biggest weekly drop since March 2020.

The ICE BofA Euro High Yield Index fell 2.9%, also the biggest weekly drop since then.

In the United States, the ICE BofA US high yield index fell 3.2% this week in terms of total return, also the biggest weekly decline since March 2020 there.

The yield spread on this index – indicating that premium investors are demanding to hold riskier debt compared to risk-free Treasuries – reached 517 basis points on Thursday, the highest since November 2020 and a daily jump of 35 basis points.

A 75 basis point rate hike by the US Federal Reserve this week – its biggest increase since 1994 – has heightened investor concerns about a possible recession and the ability of companies to service debt.

“The Fed is now focused on inflation and appears ready to take collateral risks,” Barclays strategists said in a note on Friday.

Still, they said they expect high-yield credit to trade in spreads of 450 to 475 basis points at year-end, “despite likely periods of overshoot.” (Reporting by Yoruk Bahceli and Davide Barbuscia; editing by Dhara Ranasinghe and Jonathan Oatis)