Junk Investors Turn Blind Eye as Bankruptcy Warning Signs Flash

Yield-hungry investors are seemingly refusing to see rising risks that threaten to spill over from US bankruptcy courts.

Federal Reserve interest-rate hikes beginning last year have sent the cost of money shooting higher, and companies in 2023 have been buckling at the second-fastest rate since the financial crisis. Despite that, the average risk premium for US high-yield debt has remained muted — averaging 420 basis points this year — suggesting investors don’t find junk-rated companies all that risky.

For Torsten Slok, chief economist at Apollo Global Management Inc., the juxtaposition of rising default rates and tight credit spreads ...