US High Yield Market Outlook & Positioning: Jan 2024

Friday 12 January 2024

Investment Talks

   

US High Yield Market Outlook & Positioning: Jan 2024

January 2024 | Strong fourth-quarter returns reduced US high yield spreads from 403 basis points over Treasuries at the end of the third quarter to 339 basis points at yearend. Generating positive performance with spreads at these levels is much more challenging than at the long-term average spread of 537 basis points since yearend 1996. Of course, positive performance can also potentially be generated from falling Treasury bond yields. The case for falling Treasury yields currently is built on the depth and cadence of Fed rate cuts, which we believe will be a function of decreasing service sector inflation and how much the US economy slows. Additionally, we continue to be concerned about defaults.

01 |  Fourth-quarter high yield index performance was strongly positive, with a major rally in November and December offsetting October’s weak performance.

02 |  Inflation data continued to drive the markets: In contrast to earlier in 2023, declining rather than increasing inflation swung the markets to gains.

03 | It now appears the Fed’s “higher for longer” stance was about keeping bond yields high to slow the economy instead of a true commitment.

High Yield Market Outlook and Positioning

Important Information

Unless otherwise stated, all information contained in this document is from Amundi Asset Management as of December 31, 2024 . Diversification does not guarantee a profit or protect against a loss. The views expressed regarding market and economic trends are those of the [author] and not necessarily Amundi Asset Management and are subject to change at any time based on market and other conditions, and there can be no assurance that countries, markets or sectors will perform as expected. These views should not be relied upon as investment advice, a security recommendation, or as an indication of trading for any Amundi product or service. This material does not constitute an offer or solicitation to buy or sell any security, fund units or services. Investment involves risks, including market, political, liquidity and currency risks. Past performance is not indicative of future results. Amundi US is the US business of Amundi Asset Management.

RO ID# 3331659 
©2024 Amundi Asset Management

Other news

IT-US HY Outlook
04/17/2024 Investment Talks

US High Yield Market Outlook and Positioning

Although first-quarter returns proved to be anemic, at least they were consistent. Across the quarter, monthly returns were positive and spreads moved tighter. With inflation's decline stalling, short-term rate expectations stabilized. Within high yield, Treasury yield increases largely negated the effects of tighter spreads, leading to returns near the index's coupon yield. Although CCCs were the best performers in the US and globally, the US High Yield Distressed Index  (comprised of issuers with spreads over 1000 basis points) underperformed the broader US high yield market, indicating investors were more interested in high-yielding bonds than in potential workouts.

IT-Bonds Take Center Stage
04/05/2024 Investment Talks

Bonds Take Center Stage

For most of the last year, savers have been earning a reasonable return in cash. But how long can these compelling cash rates last? Historically, the answer has been: not very long. In every rate hike cycle since the 1970s, the US Federal Reserve has “paused at the peak” federal funds rate for a matter of months, not years, and history suggests the rate cuts could begin soon. With history as a guide, we believe investors may benefit from locking in some of today’s historically elevated interest rates by moving out of cash and into short-term bonds.

IT-Passive-to-Active
03/01/2024 Investment Talks

Passive to Active: Words of Wisdom from Ted Lasso

Passive strategies have generally have fared well over the past decade, which has made it easy to forget the long periods during which active managers outpaced passive approaches. The reasons we believe market concentration will decline include (1) a shrinking earnings advantage for the top ten companies, and (2) seemingly unsustainably high valuations. We believe investors may benefit from investing with active managers that thoughtfully select their exposure based on the earnings and valuation profile of each stock.