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Weekly Market Summary
Nov 25 to Nov 29, 2024
Extra Credit*
- When looking at some of Morningstar’s fastest-growing, taxable, fixed-income categories for second half of 2024, portfolio managers across intermediate core plus, multisector bonds, and high-yield bond funds seem to be content with non-investment grade exposure, as BB, B and below B exposure has remained near the levels they started the year, with multisector bond and high-yield bond funds actually seeing an increase in exposure to below B securities.
- The high-yield bond maturity wall is still elevated and might continue to serve as a source of stress for issuers forced to refinance, as coupons on refinanced debt within the wall are expected to increase by approximately 170 basis points on average. However, the maturity wall tends to resemble the high-yield bond market when it comes to credit quality, as there is a greater bias towards higher quality BB paper. Given this, it is unlikely to cause a significant increase in defaults due to refinancing strains.
- Based on historical default rates in times of stress for high-yield bonds and the current makeup of the maturity wall, the maturity-wall-driven default rate is expected to be approximately 2.9%. This is almost 0.50% lower than the 3.4% long-term average default rate for high yield.
- Regarding the bank loan maturity wall, this has largely been dealt with, as just $62 billion of paper is due in the next two years. With that said, the maturity wall for loans is not expected to be a major driver in defaults for loans. Expectations are for the loan maturity wall to deliver a default rate of 1.2% for loans, which is much lower than the long-term default rate of 3.0.
- Bank-loan and high-yield bond default rates, excluding distressed exchanges, finished September at 1.30% for high-yield bonds and 0.55% for bank loans, up and down from 1.18% and 0.98% 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-Global Financial Crisis default rates of 2.3% and 2.5%, respectively.
Sources: Bloomberg and JP Morgan as of 11/25/24.
Previous reports
*Source: Morningstar®, Bloomberg, Credit Suisse. OAS is Options Adjusted Spread. 4-year discount margin is used for spread for bank loans. Yield quoted is yield-to-worst or equivalent calculation. YTD Low / High for yields are based on end of week and not intraday movements. Indexes and sub-indexes: Investment-grade corporates represented by Bloomberg US Corporate Bond Index. High-yield bonds represented by Bloomberg US Corporate High Yield Index. Bank loans represented by Credit Suisse Leverage Loan Index. The red and green arrows depicted under Yields, Option Adjusted Spreads, and Prices indicate a higher or lower value from the previous week.
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