US HY: Top Picks by Yield Bogey - May 2025
Winnie Cisar - Global Head of Strategy, CreditSights
Eric Axon, CFA - Co-Head of High-Yield, Head of Healthcare, CreditSights
Davis Hebert, CFA - Head of Telecom/Media, CreditSights
David Bussey, CFA - Senior Analyst, Leisure, CreditSights
Jordan Chalfin, CFA - Head of Technology, CreditSights
James Dunn - Head of Consumer Goods, Leisure, CreditSights
Todd Duvick, CFA - Head of Autos, CreditSights
James Goldstein, CFA - Head of Retail, CreditSights
Charles Johnston, CFA - Head of Energy, CreditSights
Andy Li, CFA - Senior Analyst, Technology, CreditSights
Charles Johnston, CFA - Head of Energy, CreditSights
Wen Li, CFA - Head of Metals & Mining, CreditSights
Ben Morgan, CFA - Senior Analyst, Energy, CreditSights
Peter Sakon, CFA - Senior Analyst, Special Situations, CreditSights
CreditSights Staff - Analyst, CreditSights
27 May 2025
Executive Summary
- Since we published our March 2025 HY Top Picks, the market has made a round trip with spreads gapping significantly wider in early April, only to grind back to late-March levels. In the midst of the volatility, HY total return losses, in aggregate, totaled 400+ bp, reminding market participants how quickly wider spreads can weigh on performance, even in a higher yield environment.
- After re-racking our HY recommendation back to Underweight, we prefer to use our probability-weighted spread and yield targets of 425 bp and 8.3% as a guide for adding wholesale HY risk. A tight distribution of valuations and persistent risk increase the importance of credit selection, and we surveyed our analyst team for their top picks in US HY by yield bogey, revisiting the 6%, 7% and 8%+ cohorts.
Relative Value
Since we published our US HY: Top Picks by Yield Bogey – March 2025, HY spreads have made a round trip, gapping significantly wider in the days following Trump’s “Liberation Day” tariff announcements and swiftly grinding back to a recent tight of 309 bp. As investors grappled with the mix of macro and micro tariff-fueled headaches, higher-rated names took the biggest proportional hit as BB and B indexed spread widening significantly outpaced CCCs.
So far in 2025, HY total return performance is a sub-coupon 2.0%, with CCCs posting the most challenged +0.9% YTD returns, behind BBs at +2.6% and Bs at +1.5%. If HY manages to stand still through the end of the year, we forecast a respectable, but still underwhelming, 6.6% 2025 total return, which would best our base case forecast of 4.6% given our call for continued upward pressure on UST yields. Over the past 12 months, HY has fared better, returning 8.4%, though the April volatility erased 400+ bp of cumulative total return performance, reminding investors how quickly spread widening can erode performance even in a higher yield environment. (For more on seasonal patterns in HY returns, see US COTD: Pre-/Post- Memorial Day Returns).
Potential catalysts: Immediate catalyst are less likely after the asset sale was announced with earnings, but further development plans in Suriname or Alaska would bolster long-term value as an acquisition target.
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