Tom Ross, corporate credit manager, discusses conditions in the high-yield market, including the default outlook, the importance of monetary and fiscal stimulus, and whether high yield can tolerate inflation.
- Current high-yield bond spreads reflect the expectation of higher default rates. Even so, expectations have moderated since the sell-off in March as economic growth has stabilized.
- Central banks have supported the high-yield market through direct purchases of corporate bonds and by providing liquidity to facilitate corporate refinancing. Low policy rates also indirectly support the high-yield market by creating greater demand for yield.
- In our view, a potential uptick in inflation is less of a concern, as credit spreads in the high-yield market offer some cushion against rising government bond yields and rising prices can be good for corporate revenues.
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