North American bond quality low
The three-month rolling average of Moody's Covenant Quality Index (CQI) reached an historical low of 3.96 in February, driven by a high percentage of Ba-rated bonds and high-yield lite covenant packages. The mark breaks January's record of 3.92, says Moody's Investors Service in a new report. "Investors are assuming more risk for less yield; average spreads to benchmark yields have tightened steadily since July, although there was a slight spread widening in February," said Moody's VP -- Senior Covenant Officer Alex Dill, author of the report, "North American Covenant Quality Index: Bond Covenant Quality Hits a New Low." Moody's began tracking the index in January 2011. Covenant quality improved to a CQI record of 3.37 in April of that year. Covenant quality of North American high-yield bonds has deteriorated steadily since hitting 3.41 in July 2012. The CQI results for February are "weak," according to Moody's five-point scale.