In July, just nine US high-yield issuers with $19 billion of bonds outstanding were downgraded by the rating agencies, the lowest number in any month since December 2018. Indeed, July was the seventh consecutive month in which upgrades – comprising $33.4 billion of bonds from 30 issuers – outpaced downgrades. And while 111 US corporations with $132 billion of high-yield bonds outstanding have been downgraded so far this year, almost two and half times as many have gone the other way.
The agencies have improved ratings on 256 US companies with $344 billion of high-yield bonds outstanding.
Chris Holman, portfolio manager at TwentyFour Asset Management, points out that the US high-yield default rate has declined by 559bp this year to just 1.17% and is on track to rest below 1% by the end of 2021, while distressed bonds today account for just 0.18% of the US high-yield market, the lowest level since 2011.
When spreads backed up by 40bp recently on fears of the Delta variant of Covid-19, some investors saw that as an invitation to put risk on.
