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Capital Markets

North Korea prompts silent retreat from junk bonds

Investors also wary of impending Fed tightening

TOKYO -- The threats arising from Pyongyang's provocations and the U.S. central bank's looming decision to shrink asset holdings are quietly sapping the appetite to invest in junk bonds, a trend that could ensnare Japanese equities.

Signs of the shifting tides appeared Aug. 8, a day before North Korea revealed it was "examining" a missile strike in the waters surrounding the U.S. territory of Guam. Yield spreads widened sharply for contingent convertible, or CoCo, bonds issued by European banks and other risky debt. The spread relative to government bonds with comparable maturities represents the instrument's risk premium.

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