Bonds are leaning into the double headwinds of rising interest rates and rising inflation. The high-yield end of the market is also struggling with mega-downgrades and troubling bankruptcies. Those events have prompted advisors to begin searching for replacements.Junk bonds for one, looked pretty good as the year began. However, the bonus over treasuries was not enough to cushion the fall. "Early in the year, high-yield bonds were priced to perfection," said Scott Berry, CFA, high-yield bond fund analyst at Morningstar. "That's why the drops in high-yield prices have come down as much as the treasuries."
The downgrades at General Motors and Ford added nearly $500 billion of supply to the market in the spring. Consistent increases of the discount rate by the Federal Reserve put the entire fixed-income market on watch. Higher energy costs and further pressure on the auto sector with Delphi's massive bankruptcy filing kept high-yield analysts working overtime. The newly issued bonds also burdened general credit quality this year.
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