High Yield Strategy: The Chartbook

Research evidence excerpt

High Yield Strategy: The Chartbook

: Option-adjusted spread

Loans. HY exposure to AI-high risk subsectors such as software/services is de minimis at

UST: US Treasuries

3% vs Loans at 16%. HY is also predominantly BB-rated, while Loans skew lower quality

Rtg: rating; Mty: maturity(see our report “AI faultline exposes high dispersion of default outcomes”), helping HY

software outperform Loans through the month (Exhibit 1). In contrast, HY CCCs: HY/Loans CCCs Rating

underperformed Loans in the software selloff of 2022- instigated by duration concerns CCCs xD: CCCs non-distressed

amid rising interest rates, rather than credit risk, the impact to HY was greater than WTD/MTD/YTD: Week/Month/Year-To-Date

Loans back then. TR: Total Return

ETFs: Exchange Traded Funds

We continue to favor HY over loans given higher risk of defaults (AI disruption)

and falling demand (rate hikes priced out on easing inflation). M&A: Mergers and Acquisitions

LBO: Leveraged Buyout

Quality bifurcation amplifies GCP: General Corporate Purposes

Quality bifurcation continued to be a 2Q credit theme with headline spreads LME: Liability Management Exercise

understating diverging undercurrents. HY spreads recovered from Q1’s geopolitical and EA: Electronic Arts

tariff-driven widening but not uniformly: BBs and Bs compressed 44bp and 62bp NFE: New Fortress Energy

respectively, but CCCs lagged (tightened 24bp in 2Q overall but gave back most of it in BDC: Business Development Company

late June widening of 23bp), leaving lower-quality credit wider, even as headline HY

SoH: Strait of Hormuz

spreads returned to pre-Iran levels. BBs continue to benefit from strong technical

support, crossover demand, and proximity to IG, while CCCs increasingly trade on

refinancing risk.