High Yield & Loan Strategy: Got growth, want beta

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High Yield & Loan Strategy: Got growth, want beta

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High Yield & Loan Strategy

Got growth, want beta

CCCs are cheap for a reason- but bar for upside is falling 10 July 2026

CCCs have lagged broader HY and loans YTD, leaving valuations near the cheapest High Yield & Loan Strategy

relative levels in years. In loans, this is also true ex-software. While investors remain United States

cautious given negative ratings migration and AI-related concerns, this Neha Khoda

underperformance has created one of the few areas in leveraged credit where Credit Strategist

meaningful opportunity for outperformance exists, provided fundamentals cooperate. BofAS+1 646 855 9656

neha.khoda@bofa.com

Key risk: refies; Key opportunity: earnings Elizabeth M. Han

Higher nominal yields still hurt sitting at ~80th percentile, while maturity walls build. CreditBofAS Strategist

20% of lower-rated loans mature over the next 2 years, creating meaningful risk of elizabeth.han@bofa.com

downgrades. But the macro signal has changed—real rates are rising on stronger Dong Ba

economic growth expectations, portending LevFin earnings growth. This has prompted CreditBofAS Strategist

us to revise up Revenue and EBITDA expectations for LevFin issuers. If earnings dong.ba@bofa.com

momentum trickles down to lower quality issuers, coverage ratios and credit metrics Adam Vogel

could begin to stabilize after several years of pressure. CreditBofAS Strategist

adam.vogel@bofa.com

B3s are the cleaner compression trade

The B3 setup looks more manageable than CCCs as incremental downgrade pressure

appears limited ($15bn), and should be digestible. In addition, B3s are also seeing

improving migration ratios. All while B3 spreads still sit at cyclical highs vs B2s, thus