Junk-Bond Risks Cloaked by the Narrowest Trading-Range Ever

(Bloomberg) -- Here’s more ammo for the skeptics in the face of the relentless credit rally: U.S. high-yield bonds are trading in the tightest range in 20 years, underscoring the notion that the grab for yield has lulled investors to sleep.

So far this year, the difference between the highest and the lowest spread notched at the index level is 71 basis points. The range, one measure of volatility, is narrower than in 1997 and 2006, years that marked the peak of the global credit cycle, according to analysis from CreditSights Inc., citing Bank of America Merrill Lynch data. 

The record-low dispersion of spreads at the index level indicates macro- and sector-driven forces have failed to spark notable price moves in either direction. To bulls, that’s a testament to the health of the business cycle. To bears, it’s a measure of complacency.

And the range is a whopping 400 basis points tighter than last year, which saw money managers grappling with deflation fears before an uptick in global expansion sparked a rally across risk markets.

Given low default rates and the benign economic backdrop, it’s "very hard" to guess what will spur a fundamental repricing of premiums, but brinkmanship over global trade is one risk to watch, strategists at the research firm wrote in a Tuesday note.