Junk bond ETFs were off to a great start in terms of asset generation at the start of the year. However, Vanguard Short-Term Corporate Bond ETF (VCSH Quick QuoteVCSH - Free Report) , iShares iBoxx USD High Yield Corporate Bond ETF (HYG Quick QuoteHYG - Free Report) and SPDR Bloomberg High Yield Bond ETF (JNK Quick QuoteJNK - Free Report) lost about $2.39 billion, $1.09 billion and $758.6 million in assets, respectively, amid the ongoing banking crisis.

The failures of Silicon Valley Bank and Signature Bank and troubles in First Republic Bank and Credit Suisse roiled global markets since Mar 9. Reginal banks are in great troubles as investors are withdrawing money from regional banks and parking the same with in big banks. 

This has brought corporate bond and loan offerings to a standstill. Borrowing costs for junk-rated issuers surged, pushing the market value of debt for some of the most vulnerable companies into distressed levels.

The average yield spread — extra money investors demand for holding weaker debt — on U.S. bonds with the worst credit ratings vaulted past 1,000 basis points. Leveraged loans — the other main financing option for risky companies — slumped to a 10-week low.

Goes without saying, financial conditions became tight in the present tighter financial conditions. So, susceptible borrowers in sectors like retail, travel and leisure will be finding themselves in trouble, in the coming days. As more deals are likely to ger arrested, high-yield companies will find it difficult to access capital. This is especially true given the crisis at the regional banks, the backbone of the U.S. economy.

“Small business and consumers alike have increased borrowing to maintain spending in the face of persistent inflation,” he said. “A tightening in the credit markets — which directly affects them — may quickly and meaningfully reshape the growth outlook,” per Scott Kimball, chief investment officer at Loop Capital Asset Management, as quoted on Bloomberg, published on Yahoo Finance.