Junk bond yields hit 8.03% in a 91-point September selloff: Treasuries first, spreads last week

U.S. high-yield bonds are having a rough September as the bond selloff spreads from Treasuries into credit, a slide MarketWatch also flagged on Tuesday. The index data shows how fast it happened. The ICE BofA US High Yield Index effective yield closed Monday at 8.03%, up from 7.12% at the end of August, according to FRED. That is the first close above 8% since April 21, 2025.

Even with a day left, that 91 basis point rise is bigger than any full month in the three years of daily data FRED publishes for this index. The next largest was 61 basis points, in March 2025.

The number behind the number: rates first, credit later

A junk bond yield has two parts: the Treasury yield underneath it and the extra spread investors demand for default risk. The two tell very different stories, so we split them.

For the first three weeks this was a rate story. From Aug. 31 to Sept. 22 the index yield rose 36 basis points while the spread moved just 5. Almost all the damage came from government bonds: the 5-year Treasury went from 4.49% to 4.83% over that stretch on the Treasury's daily curve, and the 7-year from 4.62% to 4.89%.

Then it changed. In the four sessions from Sept. 22 to Sept. 28 the yield rose another 55 basis points, and 34 of those came from the spread widening. The 5-year Treasury added only 23 over the same days. Credit investors stopped merely absorbing higher rates and started demanding more to hold the risk.

Over the whole month, roughly 52 of the 91 basis points came from the Treasury component and 39 from the spread. The headline makes this sound like a credit scare. For most of September it was not; it is only now turning into one.

The weakest credits are paying most

The CCC and lower spread, the bottom tier of the market, widened 104 basis points this month to 11.46%. That is the highest close in FRED's three-year window, above the 11.37% reached during the April 2025 tariff shock. We looked at how much of that debt comes due in the next few years in our piece on $4.3 trillion of corporate maturities.

For a company refinancing $100 million of high-yield debt at index levels, the September move alone is about $910,000 more in annual interest. Recent deals already priced near the top of that range: SoftBank paid up to 9.75% on its record sale last week, and Brightline's bankruptcy reminded high-yield funds what the downside looks like.

Who it hits on Main Street

Small businesses do not borrow in the junk market, but the same forces reach their floating-rate debt. The bank prime rate rose to 7.00% from 6.75% on Sept. 17 after the Fed's hike, and SOFR, the base for many equipment and commercial loans, climbed from 3.68% at the end of August to 3.90% on Sept. 28, both per FRED. On a $250,000 line of credit tied to prime, that quarter point is about $625 more a year.

The bigger risk is the next step. Reuters, via Investing.com, cited CME FedWatch pricing of a 68.1% chance of another 25 basis point hike in October. Lenders also watch credit spreads when setting margins, so widening in the corporate market tends to show up later as tighter terms for smaller borrowers.

What traders are watching

Tuesday's close decides the monthly total. The thing to watch after that is whether the spread keeps widening even if Treasuries settle down. If it does, the selloff has moved from a rate problem to a credit problem.

Sources: ICE BofA indexes via FRED (BAMLH0A0HYM2EY, BAMLH0A0HYM2, BAMLH0A3HYC), U.S. Treasury, Federal Reserve prime rate and SOFR via FRED, MarketWatch, Reuters via Investing.com. The rate and spread split and the interest examples are our arithmetic. This is market information, not investment advice.