JCB find the YieldReport to be an invaluable summary of all debt market activity. Whilst we are focussed on the highest grade bonds it is important to see what is..Angus Coote, Executive Director, JCB Active Bond Fund
Corporate bonds moved slightly higher. By Friday close, the high yield aggregate yield had increased 6 bps to 7.75%, the BB 4bps to 6.36%, the B 4bps to 7.88% and the CCC 2bps to 13.70%. It was actually a de-risk week.
There is a mountain of money going into new issuance. Forget about Treasury ructions. Liquidity in US high yield has never been stronger. And there is a reason for that, and its call private debt. But, despite recent market stress, credit fundamentals and technicals remain solid. Credit metrics for high yield for the fourth quarter have showed modest improvements off an already strong base. High yield issuers saw its first decline in leverage in four quarters with 15 of 18 sectors experiencing improvement.
Leverage metrics remain well below the long term average. Interest coverage has also improved for the first time in more than two years. High yield spreads (as of 4/8/25) hit their highest level since October 2023 at 453 basis points (bps). The historical median 12-month forward total return for high yield with an index OAS range between 400-500 bps is 6.2% with a median excess return of 3.7%. While volatility could continue to be elevated in the short term, historically this has been an attractive entry point for a longer investment horizon.
Figure 1: US High Yield Bond Fundamental Index
Figure 2: Delinquency on US Loans
In relation to Figure 1, the MM Fundamental Index for high-yield bonds is an integral index for assessing the fundamentals of junk bonds. When it goes up, the fundamentals of junk bonds are looking good. The Fundamental Index is updated with the monthly value on the last Friday of each month, and there may be subsequent changes due to data revisions for its constituent variables.
In relation to Figure 2, the US Fed surveys large commercial banks on the delinquency rates on loans and leases each quarter. As delinquency rates on loans and leases reflect the overall debt repayment capacity of businesses, delinquency rates serve as an important indicator of corporate bond defaults. The latest statistics are very solid: Delinquency Rate on All Loans by Banks (2024-Q4): 1.62%. Previous month: 1.52%.
