July has seen yields increase and spreads widen, raising concerns about economic growth. The Bloomberg Barclays U.S. Corporate High Yield index's yield-to-worst rose above 4% in mid-July and was at 3.89% as of July 22, compared with 3.53%, an all-time low, earlier in the month. Nonetheless, the asset class has had a remarkable run since the start of 2020, but investors may feel their returns pressured if spreads continue to widen.
Low yields, narrow spreads: Even with the recent uptick, yields remain at ultralow levels by historical standards, particularly for lower-rated high-yield bonds. Option-adjusted spreads range from 213 basis points to 506 basis points, about 180 basis points to 485 basis points narrower since the end of 2019.
Yield-to-worst by rating
Strong issuance: Despite a major issuance slowdown in March 2020, last year’s total was still more than $440 billion. This year has gotten off to an even better start, with higher totals for the first six months of the year.
Quarterly U.S. high-yield issuance
Broad-based issuance: Among sectors, issuance since the start of 2020 ranged from about $18 billion to more than $190 billion. Consumer discretionary, communications and financials each have issued more than $100 billion.
2020 and 2021* issuance by sector (billions)
Coming due: About 12% to 14% of the high-yield universe is coming due annually from 2025 to 2029, vs. less than 1% over the past several years, creating uncertainty about the condition of the market.
High-yield maturity by year (billions)
*Through July 16; Sources: Bloomberg LP, Fitch Ratings Inc.