JPM High-Yield and Leveraged Loan Morning Intelligence

Research evidence excerpt

JPM High-Yield and Leveraged Loan Morning Intelligence

350 billion of new funding in Leveraged Finance markets.

One nuance to think about is the ratings upgrade cycle, particularly for data center projects. As projects are

completed, ratings will migrate to Investment Grade. That will push some primary High Yield paper into

the High Grade markets as new Rising Stars. In a world of scarce compute, all compute is remarkably

valuable and we like these instruments. In that environment, buying wider spread project deals into a

likely refinancing or rise to Investment Grade is an attractive risk/reward in our view. That may

change at some point if and when compute shortages are ameliorated, but for now we remain very

bullish across the stack.

--High-Yield and Leveraged Loan Market Brief: High-yield bond prices rose on Monday (+$0.25 d/d,

+0.13% d/d HYG) alongside a +1.7% gain in the S&P 500, $4 fall in Brent, and 1bp decline in 10yr

Treasury yields (4.48%) with a US/Iran peace deal in sight as the two countries are expected to sign the

agreement on June 19th in Switzerland which would reopen the Strait of Hormuz. Meanwhile, a large

inventory rebuild, along with lingering geopolitical risk premium, could put a floor on oil prices. A

resumption of oil flows would help reduce the tail risk of another adverse energy-price shock, while also

increasing the likelihood that prices settle at lower levels––a development that would materially lower

headline CPI inflation momentum in coming months. High-yield bond yields and spreads declined 8bp

and 6bp on Monday to 7.09% and 297bp, which are down 1bp and 7bp in June and are up 31bp and

down 17bp YTD. Notably, yields are at a 1-month low while spreads are at a 4.5-month low and are

only 2bp above their post-GFC low.