Risk premiums on high-yield bonds have surged to levels not reached since high corporate defaults caused a severe widening of credit spreads in 2003, highlighting the impact of recent financial deleveraging on the "junk" bond market.
Last week, the option-adjusted spread, as recorded by the Merrill Lynch High Yield Master II Index of bonds, surged through 800 basis points to a high of around 862 basis points on news of Bears Stearnsâ collapse and heightened fears of further credit market volatility.
