The Outlook for Global High-Yield Bonds

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.

Key Takeaways

  • 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.