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Corporate bond defaults cross 100, highest level since crisis

Jeff Cox | Thursday, 14 Jul 2016 | 3:26 PM ET

Corporate bond defaults have just crossed an ominous milestone.

Fully 100 companies have defaulted on debt, 50 percent more than for the same period in 2015 and the highest level since 2009, according to S&P Global Ratings.

Low oil and commodity prices, along with financial market volatility in the United States and abroad, have been the primary problems for the bond market this year. While the actual ratio of distressed issues is on the decline, the level of defaults has climbed.

While the defaults have been weighted heavily to the energy sector, analysts at S&P said there’s no guarantee things will stay that way.

“Over the past year, we have seen a strong increase in both the number and percentage of defaults in the energy and natural resources sector,” the agency said in a note. “So far, there has been little spillover effect into other sectors, but we are not ruling this out in the coming quarters.”

The distressed level declined to 17.1 percent in June, the fourth consecutive monthly drop. Of the 300 issues categorized as distressed, 22 percent came from the energy sector.

Multiyear highs in defaults have failed to dampen investor appetite for corporate debt.

Trading volumes are up 33 percent for investment-grade bonds and 22 percent for high yield, according to Bank of America Merrill Lynch. Flows have been strong as well, with fixed-income funds pulling in $7.95 billion last week, the highest level since February 2015, BofAML also reported.

Last Thursday, the iShares iBoxx $ Investment Grade exchange-traded fund pulled in nearly $1.1 billion, the biggest single-day inflow ever for a corporate bond fund.

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