'Risk of a credit event surging' BofA says as coronavirus-fearing investors race out of the market's riskiest bonds

• The risk of a credit event is surging, according to Bank of America, with high-yield debt seeing billions in outflows.
• New issuances have come to a standstill, Societe Generale said.
• It's one of a slew of risk markets pummeled by this week's coronavirus sell-off. Investors fear the virus will cause growth, supply, and financial disruptions at companies.
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Investors are dumping the riskiest corporate debt as the coronavirus sell-off worsens, and it's pushing up the risk of companies defaulting.

That's according to Bank of America, which said in a Friday research note that the risk of a credit event was "surging." The note pointed to "extreme bond ETF volumes" out of high-yield and a similar "ominous breakdown" in BKLN, a levered loan exchange-traded fund.

Coronavirus, the fast-spreading disease that has killed 2,800 and infected 83,000, has markets in a definitively risk-off mood this week, as investors question how a global spread of the disease will impact corporate growth, supply chains and, notably for debt markets, balance sheet health.

That's pummeled high-yield corporate bonds - company debt rated below investment grade - which credit markets see as the first debt in the credit structure to go bad if companies should face balance sheet difficulties. Bank of America said high-yield saw its third-largest outflows, about $6.9 billion, in history this week.

The iShares iBoxx High-Yield Corporate Bond ETF was down as much as 4.1% Friday against last week's closing price. The Invesco Senior Loan ETF, the index of leveraged loans with ticker symbol BKLN, fell as much as 3.7% in the same time period.

"Exogenous shocks often expose bad leverage," the note said.

And as investors are selling off companies' high-yield debt, also called junk bonds, those companies are having a harder time accessing new debt financing.

"Corporate debt issuance has come to a standstill in this sell-off," said Sandrine Ungari, head of cross-asset quantitative research at Societe Generale, in a note Friday. High-yield debt will bear the brunt of the halt in issuances, versus investment grade, she said.

Stress in the junk bond market is part of a broader landslide that's taken place in risk assets this week. The Dow Jones Industrial Average dropped 1,000 points Friday morning, after posting its biggest one-day point drop ever on Thursday. It's on track for its worst week since the financial crisis.