US High-Yield Newsletter – 1Q26

Two forces collided in 1Q26: a Middle East oil shock that pushed Brent up 94.5% and a hawkish Fed hold that kept Treasury yields elevated - the exact macro mix that historically punishes high-yield. Instead, the asset class returned -0.5%, beating the S&P 500 by more than 400 bps and effectively matching short-duration EM debt. The mechanism was unglamorous but decisive: coupon income did the work that spread compression no longer can. Beneath that headline, the market split cleanly along the rating spine. BB issuers used early-quarter tights to clear $162 Bn of refinancing supply at an average OAS of 179 bps; CCC credits, sitting at 910 bps, managed just $2 Bn as the 2026-2028 maturity wall moved from abstract concern to pricing input. Sector flows confirmed the same instinct from a different angle - Utilities and Consumer staples drew capital, cyclicals were rationed.

The signal: spread tightening is no longer the trade. Return dispersion in 2026 will be set by who can refinance and who must wait - making rating discipline and sector mix the two levers that actually matter from here.