Weekly Market Summary

Extra Credit^*

• The high-yield bond market has endured significant structural changes over the past few years. Index duration is its shortest on record, with nearly 57% of BBs and 66% of single-Bs due in less than five years. The index is also its most secured on record, with 36% of market value having security. Secured-only issuers are skewing the usual secured-unsecured dynamic. Over 20% of the high-yield bond index is now composed of paper from issuers that only have secured debt. This debt trades structurally wide to the secured debt of issuers that also have unsecured bonds.
• The nascent CLO ETF market has had a strong start to the year. A new record for inflows was set last week with $1.2 billion of net inflows in the week ending Jan. 17 versus average weekly inflows of $338 million in 2024, taking the assets under management (AUM) to over $25 billion. There have also been three new ETFs launched in Europe this year. Following the success of CLO ETFs in the U.S., focus has turned to whether Europe will follow suit. Although most CLO ETFs in the U.S. have mandates that allow European investments, only one has any European CLO holdings.
• CLO ETFs have been a positive force for CLO spreads in 2024, particularly for AAAs where much of the investment is targeted. Although the first CLO-focused ETF was launched in September 2020, much of the growth has been recent with $16 billion net inflows in 2024.
• Bank-loan and high-yield bond default rates, excluding distressed exchanges, finished the month both at 1.52% for high-yield bonds and 0.36% for bank loans, down and up from 1.54% and 0.34% in the month prior. This is also well below the long-term historical default rate of 3% for loans and 3.4% for high yield, and the historical post-GFC default rates of 2.3% and 2.5%, respectively.

Sources: Bloomberg and JP Morgan as of 1/27/25.