The spread between the riskiest US corporate bonds and US Treasuries has widened past 1,000 basis points, marking the first time since the 2023 regional banking crisis. Such a level of risk premium typically signals a heightened likelihood of default, restructuring, or losses.

Bonds rated CCC, the lowest tier within the high-yield category, reached a spread of 1,007 basis points on Wednesday, up from 860 basis points in early September. This is the widest level since March 2023, when the regional banking crisis triggered a broad selloff in high-risk credit assets.

"The main driver is that the economy is performing well, but not particularly strongly," said Collin Martin, head of fixed income research and strategy at Charles Schwab. "CCC-rated issuers are the riskiest issuers in the market and tend to be the most sensitive to changes in interest rates."

CCC bond spreads have been climbing steadily since April, as investors began anticipating that the Federal Reserve would shift toward tighter policy to curb inflation. Surging global yields have driven up debt servicing costs and made refinancing more difficult, putting pressure on highly leveraged borrowers, all while a large volume of bonds and loans are approaching maturity.

Strategists noted: "The riskiest batch of bonds is being sold off, reflecting market concerns that as interest rates rise, years of repeated restructuring of distressed debt and persistent delays in addressing problems will ultimately come at a cost and trigger a new wave of defaults."