Interest rate cut signal detonates junk bond market! U.S. high-yield bond yields fall to a 40-month low.

Last Friday, the US junk bond market experienced significant volatility, with yields falling to a 40-month low. At the same time, due to the sharp decline in yields, bond prices surged, marking the largest single-day increase in nearly three months. This trend is closely related to the latest remarks by Federal Reserve Chairman Powell - who sent a clear signal of a rate cut in September at the Jackson Hole Symposium, shifting market focus rapidly from inflation risks to potential slowdown in the job market. Multiple positive factors - steady corporate earnings, weakening labor data, and rate cut expectations - combined to drive yields back to the lowest levels since April 2022, with bond prices achieving their largest single-day increase since May. As a result, sentiment in the corporate bond market significantly improved, leading to a collective downturn in bond yields across all levels. Specifically, BB-rated high-yield bond yields closed at 5.80%, hitting an 11-month low and dropping by 0.36 percentage points from the previous trading day, the largest single-day decline since May. Of particular note, the highest-risk CCC-rated bond yields fell sharply by 20 basis points to 10.58%, marking the largest single-day drop since mid-June. The 0.53% yield performance of this level of bonds last Friday also became the best single-day increase in over two months. Market analysis suggests that the rate cut expectations have directly reduced default risk premiums, prompting funds to flow into high-risk, high-yield sectors. Positive signals are also being released on the primary market supply side. According to the latest report from JPMorgan, following a surge in issuance in June-August, the supply of high-yield bonds and leveraged loans for 2025 may continue to increase due to attractive current yields, narrowing spreads, and expectations of loose monetary policy. The bank has raised its junk bond supply forecast for next year from $225 billion to $300 billion and significantly increased the size of leveraged loans from $600 billion to $985 billion, highlighting institutional optimism about market financing demand.