High yield investors are worried about the scale of downgrades in the BBB area of the investment grade credit market; and the possibility that fallen angels could swamp the relatively smaller high yield market.
In this report, we consider the scale of the potential downgrades and their likely impact on the high yield space. Perhaps surprisingly, we see such downgrades as positive for the high yield market as they will diversify and improve the quality of the issuer base.
The year started off with enthusiasm as markets extended the longest bull run in recent memory. There were concerns about the rally running out of steam, but the extent of the subsequent reversal was beyond most investors’ expectations.