Search this website. You can use fund codes to locate specific funds

Weekly credit insight

Chart of the week: returns and volatility in global high yield

Global credit has been affected this year by lower oil and natural-gas prices. This has led to heightened volatility in the energy sector, as default rates have risen and the number of fallen angels – companies downgraded from investment-grade to high-yield status – has increased.

Our chart of the week looks at the returns of different sectors as a share of the global high-yield benchmark, then plots this against how volatile these returns were on a month-on-month basis (see figure 1). We can see that the energy sector now accounts for almost 20% of ex-ante volatility in the global high-yield universe, as measured by duration times spread. The telecommunications industry comes second, at 11% of the total. Energy is also the largest sector in notional terms, accounting for 11% of the global benchmark.  

Figure 1: High-yield returns and volatility by sector

Source: Herme Credit, ICE bond indices, as at December 2019.

The composition of the high-yield world is likely to be volatile going forward: more issuers could default, while others may be downgraded from investment grade. The energy sector’s considerable size, its sensitivity to macroeconomic uncertainty and heightened volatility all suggest it will be one of the key drivers of performance next year – much as it was in 2019

More Insights

Eurovision: why the region’s banks seek dance partners
Economic, regulatory and technological forces are setting a drumbeat for mergers between European financial institutions.
Weekly Credit Insight
It takes incrementally more good news for markets to move higher.
Sustainability-linked bonds get the green light
The European Central Bank announced its support for sustainability-linked bonds this week.
Economic Outlook: Will the debt matter?
Neil Williams examines the impact that various pandemic-related stimulus packages have had on both global government debt and the efficacy of monetary and fiscal tools available to policy-makers.
Credit: Industry Insights
With second-quarter earnings wrapped up for US retailers, all eyes are now on the holiday season. How will retailers fare in the second half of the year?
Launching new carbon-disclosure standards for UK finance
We played a key role in launching the UK coalition of the Partnership for Carbon Accounting Financials this week.