US HY: Top Picks by Yield Bogey – 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.

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.