Junk Lags as Investors Seek Safety in Quality
November 13, 2025
Despite a broad rally across U.S. assets, driven by falling interest rates, ongoing economic resilience and tight credit spreads, risky junk debt has underperformed.1 In the month ended Nov. 6, CCC-rated bonds in the U.S. have dropped nearly 0.8%, underperforming the broader high-yield market as investors increasingly avoid the riskiest debt.2 In terms of spread, CCC debt widened twice as much as that of all high-yield debt — approximately 27 basis points (bps) from Oct. 31 through Nov. 6 — compared with 13 bps on average for the rest of high yield.3
In contrast, the investment-grade (IG) market is on pace to have one of its best return years since 2020, with BBB-rated bonds performing the best.4 If IG continues its current performance, it will mark the first outperformance over high yield since 2020, when investors fled to safer securities amid extreme global uncertainty.5 However, IG spreads have seen some pullback recently, with $75 billion in supply from technology companies in September and October alone to fund increasing artificial intelligence demand.6 While gross issuance is reaching record levels, it is not outpacing maturities in the market, leaving an even stronger demand for debt.7
Investors are not seeing the same type of returns for junk bonds, despite outsized risk.8 Recent bankruptcies in riskier names, such as Tricolor Holdings and First Brands Group, have resulted in millions of dollars in losses at some large banks and funds, making investors more wary.9 Following these two bankruptcies, Jamie Dimon, chief executive officer of JPMorgan Chase, said, “I probably shouldn’t say this, but when you see one cockroach, there are probably more. Everyone should be forewarned on this one.”10 These market disruptions have worried investors, leading many to shy away from lending to the riskiest borrowers. This caution has also extended to the leveraged loan market, with four deals shelved last month and six deals withdrawn between August and September.11 Investors are more comfortable with IG issuers in the event of market and economic turbulence, given that the U.S. government is more likely to provide support, as seen during the pandemic.
Key Takeaway
Amid possible market uncertainty this year, credit investors have remained more cautious, preferring more liquid and higher-quality structures. This has led to IG achieving one of its best performance years since the pandemic-driven flight to quality, offering better returns and less risk than some high-yield offerings, which are experiencing notable underperformance.
Sources:
1,4,5,7,8Bloomberg – Credit Punishes the Brave as Safest Debt Pulls Ahead: Macro View; 11/7/25
2,3,11Bloomberg – Fear Is Coming Back to the Junk Bond Market: Credit Weekly; 11/8/25
6Reuters – Five debt hotspots in the AI data centre boom; 11/5/25
9,10Bloomberg – Dimon’s ‘Cockroach’ Fear Revives Threat of Cracks in Credit; 10/14/25
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