May 24, 2022 - Economy & Business

Bond market flashes warning signs

Data: S&P Global Market Intelligence; Chart: Axios Visuals
Data: S&P Global Market Intelligence; Chart: Axios Visuals

Professional investors think we're headed into one of the most risky environments for corporate credit outside the beginning of the pandemic.

Driving the news: The CDX North America High Yield Index, used by institutional investors like hedge funds, has moved down about 10 points since late December. The index represents a basket of default insurance contracts on bonds (known as credit default swaps).

  • That may sound complicated — but the important thing to know is that a lower price on the index means investor views on the future of high yield bond quality are deteriorating.

The bottom line: As the Federal Reserve begins tightening the money supply, CDX prices are signaling more challenging financial conditions ahead for companies — like higher borrowing costs and a potential rise in defaults, George Catrambone, head of Americas trading at DWS Group, tells Axios.

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