High-Yield and Bank Loan Outlook
Third Quarter 2020
Here are the key takeaways from our latest High-Yield and Bank Loan Outlook report:
- With the Fed’s Secondary Market Corporate Credit Facility targeting a normalization of credit market functioning, we are monitoring metrics, including the level of credit spreads, credit curve shape, trading volume, and bid-ask spreads.
- There is still scope for improvement in the level of credit spreads. BBB-rated spreads remain 37 basis points wider than January levels. BB-rated corporate bond spreads are 124 basis points wider than January levels, and B-rated corporate bonds are 130 basis points wider.
- High-yield credit curves remain inverted. In the BB-rated sector, the difference between a nine- to 10-year maturity bond spread and a two- to three-year maturity bond spread is -36 basis points.
- Rating migration has been negative and default rates have risen, reminding us that the Fed’s programs cannot repair solvency issues.
- Our work continues to focus on opportunistically capturing value as the Fed’s programs support credit markets. As such, we are somewhat bullish.
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One basis point is equal to 0.01 percent.
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