Weekly Market Summary

Extra Credit^*

• Downgrades in high yield are trending at the same pace as 2023, but upgrades are increasing. Most downgrades in high yield this year have been repeat downgrades (on bonds that have already been downgraded at least once). This might be concerning since already-downgraded bonds are more likely to be downgraded again, and the spread reaction tends to be more severe for repeat than for first-time downgrades.
• Year-to-date mergers and acquisitions (M&A) volumes are up 17% year-over-year, but activity has been concentrated among a few sectors. 2023 was one of the quietest years for M&A post-GFC. However, the market has been active to start the year, as the chance of recession has been largely removed from forecasts and inflation has declined from its peak. Deals thus far have been largely concentrated in tech, energy, financial blocker entities (fincos), real estate investment trusts (REITs), and pharma.
• Barclays expects $1.8 trillion of M&A volumes in the next twelve months, up 15-20% year-over-year from current last twelve-month (LTM) volumes. Their revised top-down model also suggests that deal volume will pick up by 15-20% over the next year, as it has already been higher so far in 2024 compared with 2023. The recent uptick should persist, as conditions and optimism have improved and a very quiet 2023 has left a lot of pent-up deal activity.
• Bank-loan and high-yield bond default rates, excluding distressed exchanges, finished May both at 1.25%, respectively. This was compared to 1.32% and 1.55% from April, as the high yield default rate was 30 bps lower, and the loan default rate now sit at a 16-month low. The long-term historical default rate for loans and high yield bonds was 3.0% and 3.4%, respectively.

Sources: Bloomberg and JP Morgan as of 6/3/24.