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

Weekly Credit Insight

Chart of the week: the high-yield market is growing again

So far, 2020 has provided an unprecedented unfolding of events: credit markets rallied at the turn of the year but suffered a coronavirus-induced drawdown in March as volatility spiked and liquidity conditions deteriorated significantly. While the trajectory of Covid-19 remains uncertain, in the latest episode of our fixed-income podcast Delta, we examined the tumult of 2020 and what might happen going forward.

Indeed, much has happened this year – and as we enter the final quarter of the year, the size of the high-yield market is scaling new heights (see Figure 1) in the US, Europe and Emerging Markets (EM). Having stagnated since 2015, most notably in the developed world, the high-yield market is growing again – and it is quickly offsetting the decline over the past five years.

Figure 1. High yield: hitting new heights Source: ICE Bond Indices, as at October 2020.

So, what is driving this growth? A confluence of factors, but the most impactful has been the record number of companies downgraded from investment-grade to high-yield status. Such companies and their bonds are known as “fallen angels”. However, the influx of fallen angels to the high-yield market so far this year does not reflect some of the doomsday scenarios predicted during the March sell-off. That’s because central banks announced sweeping measures to support credit markets, governments introduced support packages, and corporates responded quickly, thereby stabilising their rating trajectory.

In addition, there is a continued lack of momentum in the leveraged loan market because it no longer benefits from tailwinds associated with rising interest rates. In the last five years, such tailwinds helped the loan market cannibalise some of the issuance from the high-yield market.

Finally, the quick response to shore up liquidity led to elevated issuance this year, particularly in the US market.

More Insights

Climate Change High Yield Credit strategy, interim report 2022
In this inaugural report, we delve into what makes the Federated Hermes Climate Change High Yield Credit strategy unique. As well as introducing our process and team, the report provides an overview of our proprietary Climate Change Impact (CCI) score, complete with portfolio examples to illustrate the scoring system in practice.
Federated Hermes Stewardship Report 2021
At Federated Hermes we believe the investment industry can be a powerful force for good, building a fairer, more equitable world for all – and that active ownership and engagement is the best way to achieve this. In this, our second annual Stewardship Report, we provide an update on our efforts towards effective and outcomes-driven stewardship.
The chimps are coming
The public art exhibition Chimps are Family, unveiling on Endangered Species Day (Friday the 20th of May) at Tower Bridge, sets to create awareness around the plight of the endangered apes.
Market snapshot: Slowdown fears send equities spinning
Stagflation concerns continue to mount, with investors piling into cash positions as the global growth outlook plunges.
Plus and minus: can QT annihilate QE (and other anti-inflation questions for financial markets)
Fiorino queries whether investors should expect an equal-and-opposite reaction as central banks release the anti-QE solution into the real world...
The soil carbon sponge: A sequestration trump card
In a briefing to investors, Walter Jehne, co-founder of NGO Regenerate Earth, argued that a focus on cutting emissions misses the point when it comes to understanding what a healthy biosphere could do to sequester carbon.