US High-Yield Newsletter – 1Q25

2024 was a banner year for U.S. High Yield (HY) corporate bonds as investors reached for yield amid tight spreads and low default risks. A confluence of higher base interest rates, improving macro conditions, and investor appetite for carry drove robust returns.

However, 2025 begun on a different note. With tariff uncertainty post-U.S. elections, growing recessionary fears, and supply chain disruptions, we’re seeing a shift in market sentiment. Spreads have widened from historically tight levels, and risk premiums are rising — but that’s not all bad news.

With volatility back, HY credit is starting to look mispriced — and attractive. Markets tend to overshoot, and the recent spread widening could be a prime entry point for alpha. Meanwhile, expectations of lower rates and rising refinancing needs are likely to fuel a wave of new HY issuances. Active managers who stay ahead can seize opportunities in both primary and secondary markets.