Scarce supply may explain junk bonds’ ‘extreme’ mispricing
Spreads are at odds with historic norms, leaving investors asking why
Marty Fridson has been called the dean of the high-yield bond market for his modelling of what drives prices. Right now, his model is telling him the market is wrong. Fridson’s econometric work indicates that high-yield spreads over US Treasuries should be at least above 630 basis points. The reality is not even close.
Two-thirds of economists recently polled by Bloomberg expected the US economy to enter a recession within a year. Yet the ICE BofA US High Yield Index’s option-adjusted spreads
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