Measures of bond risk surged worldwide amid concern thatinvestors may face more losses in the roiling debt markets afterThird Avenue Management froze redemptions from a high-yield fundand London-based Lucidus Capital Partners liquidated its entireportfolio.

Credit-default swaps that are used to insure against losses onjunk bonds rose in the U.S. and Europe, with the risk premium onthe Markit CDX North American High Yield Index rising to thehighest level since November 2012 and the Markit iTraxx EuropeCrossover Index that tracks speculative-grade debt in Europeclimbing for a fifth day. BlackRock's iShares iBoxx High YieldCorporate Bond ETF, the largest fund of its kind, dropped as muchas 1.1 percent to the lowest levels since 2009.

“Everyone is nervous,” said Bill Blain, a strategist in Londonwith brokerage Mint Partners. “We know energy names are in mosttrouble and that defaults are set to soar. At the moment it's afalse calm before the storm moment. There are no bids or offers.Nobody wants to be the first to jump.”

Lucidus Capital Partners, a high-yield credit fund, said onMonday it would return the US$900 million it has under managementto investors next month. That comes after Third Avenue last weeksaid it was shutting a $788 million credit mutual fund and delayingdistribution of investor cash to avoid bigger losses, fueling thebiggest one-day selloff in U.S. junk-bond markets since August2011.

As the declines intensified on Friday, hedge fund Stone LionCapital Partners also suspended redemptions.

“We're in one of those moments where all of a sudden there's acomplete liquidity gap,” said Geraud Charpin, a portfolio managerat BlueBay Asset Management in London, which manages more than $60billion. “If everybody wants to rush for the door it's not going tohappen and more funds may have to temporarily gate. You want toappeal to calm.”

Investors including Jeffrey Gundlach, Carl Icahn, and Bill Grosshave warned there could be worse to come for high-yield debt. Icahnsaid on Twitter that “the meltdown in High Yield is justbeginning.” Scott Minerd, global chief investment officer atGuggenheim Partners, predicts 10 percent to 15 percent of junk bondfunds may face high withdrawals as more investors worry aboutgetting their money back.

Some investors see opportunities in lower-rated debt followingthe recent declines.

High-Yield Debt 'Attractively Priced'

“I haven't seen the high-yield market this attractively pricedsince December 2008,” said Dan Fuss, vice chairman of Loomis Sayles& Co. “You've just been run over by a bus and there's anotherone coming, but the good news is, they aren't tanks.”

The average yield on junk bonds globally jumped 53 basis pointsthis month, to a more than three-year high of 8.43 percent at theend of last week, according to a Bank of America Merrill Lynchindex. That's up from a record low of 5.64 percent in June 2014,the data show.

Investors have lost an average 2.4 percent from high-yield bondsworldwide this month, according to Bank of America Merrill Lynchindex data. The securities have lost 1.9 percent since the start ofthe year, compared with returns of 2.5 percent in all of 2014, thedata show.

“It's hard to see the negative momentum turning around beforethe end of the year,” said David Ennett, Edinburgh-basedhead of European high-yield at Standard Life Investments, whichmanages about 250 billion pounds (US$378 billion). “Investors needto make sure they like what they own so they can stomach pricevolatility.”

Measures of risk in the Asia-Pacific region also rose Monday.The Markit iTraxx Asia index of credit-default swaps on corporateand sovereign debt rose 2 basis points, to 146 basis points, as of2:17 p.m. in Hong Kong, Westpac Banking Corp. prices show. That'sset for the highest close since Oct. 8, according to data providerCMA.

“What started off being a bad situation in the energy segment isnow spreading and risking a very nasty end of the year,” said MarkWade, the London-based head of industrials research at Rogge GlobalPartners Plc, which manages more than $50 billion. “There have beena lot of tourist buyers in the high-yield market. They try to getout on signs of weakness. As soon as you mention that funds aregated, it brings back nasty memories from 2008 and 2009.”

–With assistance from Tesun Oh, David Yong, Margaret Collins,Benjamin Purvis, Cordell Eddings, Lianting Tu, Alastair Marsh, andAleksandra Gjorgievska

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