The U.S. high-yield bond market is flashing a concerning signal, according to Moody's Investors Service. In a late-Thursday report, Moody's said it is seeing a greater rate of downgrades relative to upgrades in the high-yield bond market, also referred to as below investment grade, or more colloquially, junk bonds. Junk bonds refer to debt issued by companies whose credit rating is low and represent the greatest probability of defaulting. Ratings upgrades mean corporate credit quality is improving, whereas downgrades indicate deteriorating fundamentals. So far, in the fourth quarter of 2015, there have been 57 downgrades compared with 18 upgrades in the high-yield bond sector, Moody's data released late Thursday show. That ratio of upgrades to downgrades marks the worst imbalance since the height of the Great Recession, Moody's said. At that point, the U.S. economy was still reeling from a global financial crisis. Moody's also said the last three months of 2015 is shaping up to be the second straight quarter of substantially fewer upgrades relative to downgrades, pointing to an emerging negative trend in the market for U.S. corporate debt.
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