In the autumn of last year, US bond investors fully expected Cloud Peak Energy to pay back the money it had borrowed. A bruising fourth-quarter sell-off across commodities has since put that in doubt, as the Wyoming-based miner has missed a series of interest payments.Elsewhere, adhesives business Hexion, backed by private equity firm Apollo Global Management, slipped into bankruptcy this month with $2.5bn of its $3.8bn debt load maturing in 2020.What both companies had in common: they are rated triple-C, one of the lowest rungs on the ratings ladder.“I think of triple-C bonds a little bit like the bar scene in Star Wars,” says Scott Roberts, head of high yield at Invesco, evoking a port described by one character as a “wretched hive of scum and villainy”. Mr Roberts adds: “Every single one is unique. You have to understand that because they can wreck not just one but multiple years of your performance. It is the greatest source of default activity.”That level of risk is proving too much for many investors.
The weakest part of the corporate bond market has not fully recovered. You can see it clearly in the chart below. More a divergence than sign of risk aversion. Investors are massively complacent right now.