Riskiest Borrowers Left Behind in US Corporate Bond Rebound

Investors are steering clear of corporate America’s most vulnerable borrowers, even as credit markets rally on bets that the worst of the global banking crisis may be over.

The gap in spreads between the two weakest tiers of corporate debt typically issued — B and CCC — has widened dramatically since the end of February after three US regional banks failed and Credit Suisse Group AG was hastily taken over. It now costs CCC issuers on average 531 basis points more than B rated issuers to sell bonds, according to data compiled by Bloomberg.

The disparity comes as fixed-income traders ...