On Tuesday, Fitch downgraded J.C. Penney’s (JCP) senior unsecured notes (as well as its Issuer Default Rating) to junk territory, sending them from BBB- to BB+. Given that many retail investors venturing into the world of corporate bonds do so through exchange-traded products, holders of HYG, JNK, and PHB might be wondering how much of a negative impact this downgrade had on their portfolio. The answer: None.
As of the most recently available data, HYG and JNK held no J.C. Penney debt. On the other hand, PHB has slightly over 1% of its portfolio in J.C. Penney debt. However, despite the fact that the stock dropped more than 3.12% on the day of the downgrade, the bond market largely yawned at this news. Moody’s and S&P already had the company rated Ba1/BB+ respectively, and Fitch brought its rating in line with its more influential cousins.
Investors interested in looking for the bond market’s reaction to surprising news can often find the highest volatility in prices by looking at longer-dated bonds. In J.C. Penney’s case, the April 1, 2037 maturing, 7.40% coupon senior unsecured note (CUSIP: 708160BS4) can serve as a good example.