Credit Outlook: The High-Yield Rally Is on Its Last Legs
- By John Tierney
- 4 min read
Summary
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- Credit spreads have trended tighter in recent weeks, despite some high-profile defaults and downgrades of regional banks by Moody’s. Bottomline, these events have been in market prices for months.
- One indicator still flashing yellow is quality spreads, or difference between spreads for rating cohorts. These widened in September 2022, when recession concerns peaked, and are still at levels implying concern among credit investors about recession risk.
- In the investment grade sector, industrials and utilities have fully recovered from the Silicon Valley Bank (SVB) selloff, but financials are still trading some 10bp wider than pre-crisis levels. We expect further recovery to be gradual.
Summary
-
- Credit spreads have trended tighter in recent weeks, despite some high-profile defaults and downgrades of regional banks by Moody’s. Bottomline, these events have been in market prices for months.
- One indicator still flashing yellow is quality spreads, or difference between spreads for rating cohorts. These widened in September 2022, when recession concerns peaked, and are still at levels implying concern among credit investors about recession risk.
- In the investment grade sector, industrials and utilities have fully recovered from the Silicon Valley Bank (SVB) selloff, but financials are still trading some 10bp wider than pre-crisis levels. We expect further recovery to be gradual.
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