The average junk bond yield of 5.18% is higher than the all-time low of 4.93% hit exactly one year ago, but valuations may be even richer now, says Citi.
First off, Treasury yields are higher today, meaning spreads are narrower than they were last year. Secondly, current yields have been sustained at these low levels for a much longer period of time than last year. Citi also notes May has been a seasonally weak period for high-yield ever since the financial crisis.
"Will elevated valuations and the calendar turning to May cause the bears to come out of hiding," asks Citi. "To be honest, it’s been very difficult being a bear in this market. The relentless Treasury rally has caught us by surprise."