The 22 primary bond dealers on Wall Street slashed holdings of high-yield bonds by 68% in the week that ended Oct. 15. Their positions fell from about $6.3 billion to $2 billion, coming during the greatest market volatility in about a year.
Buyers of U.S. high-yield bonds accepted the weakest covenants ever recorded in September, Moody's said. Covenant quality "declined precipitously" throughout North America and for all credit ratings, the firm said.
Credit default swaps on European high-yield bonds have slipped to their lowest level since June 2007. Driving that is investor belief that worldwide economic growth looks promising. Investors are particularly attracted to Europe, after emerging markets have been disappointing.