US HY: 6%+ Names Our Analysts Like

CreditSights Staff

EXECUTIVE SUMMARY
  • Recent volatility has re-racked credit market valuations; however, returns for lower rated issuers have generally held in better than for higher rated market segments. With B and CCC yields well above recent lows, investors can now add exposure to domestic-focused US High Yield issuers at the highest level since June 2020.
  • The Russia/Ukraine conflict adds to a high degree of risk to the broader economic outlook, requiring that investors focus on credits that provide some insulation from commodity price shocks and subsequent demand headwinds.
  • We polled our analyst team for top picks in US High Yield which are currently yielding 6% or more and came up with a list of thirteen issuers with debt yielding over 6% that our analysts think are attractive in the current environment.

RELATIVE VALUE

Current market conditions require that investors balance elevated inflation, growth headwinds, the prospect of tighter monetary policy and the implications of the Russia/Ukraine war. In recent weeks, volatility has re-racked credit market valuations, pushing aggregate HY yields well above recent lows; however, returns for lower rated issuers have generally held in better than for BBs and the IG market. YTD 2021, CCCs are the top performing rating segment, with total return losses of -3.7%, followed closely by Bs at -3.8%. This compares with BBs at -5.0% and the IG market at -5.8% as longer-duration, more liquid market segments have come under the most pressure in recent weeks.

The relative durability of the HY market amid the broader sell-off is also explained by the alignment to US-focused issuers, a higher concentration in the Energy/commodities sector and supportive supply technicals. YTD HY issuance is running well behind the 2021 run rate as opportunistic issuers wait out volatility and last year’s proactive wave of refinancing left HY balance sheets in generally good shape.

STRATEGY
US HY: 6%+ Names Our Analysts Like

CreditSights Staff

Would you like to access the full report?

Submit your contact details to download the full PDF report.

Know More. Risk Better.®

Sign up to receive our latest credit insights direct to your inbox.

Subscribe now