Investors chase risky junk bonds despite warnings from top Wall Street figures

Speculative debt investors in the U.S. are jumping into the riskiest parts of the bond market. They're ignoring warnings from big names like JPMorgan's Jamie Dimon. Bold move.

CCC-rated bonds—the bottom of the junk pile—delivered a 0.75% return through last week. Pretty good. These risky bets outperformed all other bond classes, even the safe stuff, Bloomberg data shows.

BB-rated bonds, sitting at the top of the junk heap, are underperforming. Weird shift. Earlier, economic policy worries made BB bonds seem like the safer bet within junk territory.

Those fears? Gone now. Stock markets hit new highs. Investors seem kind of comfortable taking bigger risks for better yields.

BB bonds lose their shine as risk appetite grows

"As investors have become more comfortable, they've begun to reach for risk," says Robert Tipp from PGIM Fixed Income. You can see it happening—people ditching BB bonds for CCC securities.

Jamie Dimon isn't buying it though. Back in September 2025, he said the U.S. economy "is weakening" and worried about inflation. He's been saying credit spreads are "unnaturally low" for a while. If he were running a fund? He'd stay away from credit investments completely.

DoubleLine's Jeff Gundlach has his "lowest ever allocation" to high-yield bonds. He thinks current prices miss the real risks. Not entirely clear if he'll be proven right.

Some cautious investors are moving in the opposite direction. They're abandoning junk bonds entirely, climbing up to BBB investment-grade bonds. The yield gap between BB and BBB has shrunk to just 75 basis points. The ten-year average is 120. This tight spread means you don't need to take BB risks for decent returns.

BB bonds face another problem—"fallen angels." These are former investment-grade companies knocked down to junk status. Warner Bros. Discovery shows this perfectly. Its planned split triggered a downgrade, dumping billions in new debt onto the BB market. Kelly Burton at Barings notes: "When big names come our way we need to determine how well these names can be digested and whether it will cause a technical dislocation."

Credit landscape reshapes with strategic moves

While junk bond folks chase yields, major U.S. banks are making funding moves after earnings. JPMorgan Chase went straight to the domestic investment-grade market. Wells Fargo and Citigroup tried Europe first, putting off U.S. bond offerings.

Over in China, real estate developer China Vanke wants to extend its domestic bank loans by up to ten years. Cash problems.

Chuck E. Cheese's parent company, CEC Entertainment, is talking with equity investors for $600 million. They need to handle upcoming debt after failing in the junk bond market. Tough spot.

Canadian retailer Alimentation Couche-Tard just dropped its ¥6.77 trillion ($45.8 billion) takeover of Seven & i Holdings. They chased the Japanese 7-Eleven operator for almost a year. Seems the target company wouldn't even talk seriously.

In Texas, LifeScan Global Corp. filed for bankruptcy protection. The glucose monitor maker, backed by Platinum Equity, made a deal to hand control to creditors for debt relief.

Zayo Group Holdings, a fiber-network provider, is almost done making a deal with creditors to extend some debt maturities. Not finalized yet, but it might give Zayo breathing room in this tight credit market.