Omicron Fear Triggers Sharp Drop in US Junk Bonds

Air France-KLM Group Delays Capital Increase Amid Worsening Two-Year Yield Spread

[Asia Economy Reporter Yujin Cho] Concerns have emerged that the spread of the Omicron variant will impair the repayment ability of companies with low credit ratings, causing U.S. junk bonds to fall the most in a year.

According to major foreign media on the 30th (local time), the U.S. high-yield bond index (speculative-grade bonds with credit ratings of BB+ or lower) compiled by ICE Data Services fell more than 1% last month, marking the largest decline since September last year.

In particular, the high-yield bond index rated 'CCC' or lower, which is junk grade, dropped 1.4%, showing a larger decline. Due to the plunge in bond prices offsetting the interest payments on bonds, the total yield also fell into negative territory last month. This is the second time this year that high-yield bond yields have turned negative.

This plunge reflects concerns that companies with low credit ratings may face difficulties in raising funds due to the emergence of the Omicron variant, tightening monetary policies, and economic recession caused by lockdown reversals. Airline bonds were also severely hit amid forecasts that travel demand would be restricted due to the variant's spread.

Europe's largest airline group, Air France-KLM, decided to postpone its planned capital increase schedule as the market environment deteriorated following the emergence of Omicron. The airline has been seeking to raise more than 1 billion euros by the end of the year to repay debt. Air France-KLM declined to comment on the postponement of the capital increase schedule.

(Photo by Reuters)

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