Junk Yields Fall to 40-Month Low Fueling Best Gains Since May

US junk bond yields plunged to a new 40-month low on Friday, spurring the best one-day gains in nearly three months after Chair Jerome Powell signaled that the Fed is open to a rate cut in the next meeting, shifting focus to downside risks to the labor market rather than upside risk to inflation.

Strong corporate earnings, a relatively weak labor data and expectations of a rate-cut cycle drove yields down to the lowest since April 2022. Yields tumbled across the ratings spectrum fueling the best one-day gains since May on expectations of a rate cut as soon as September.