Is the High Yield Market Expecting a Rise in Defaults?

May 19, 2016

Given the depressed oil prices earlier in the year coupled with the recent credit rally, we have gotten many questions from clients about the future direction of default rates, particularly for high yield bonds. In early February, the question was about how high default rates would rise as a result of low oil prices and their subsequent impact on high yield issuers, particularly those in the energy sector. Now, as credit has rallied, investors are wondering if expected default rates are too pessimistic in light of the rally and rise in oil prices. This newsletter contemplates the current implied default rate for high yield bonds and how successfully it has predicted actual default rates, all in an effort to further examine the state of the high yield market. Ultimately, the goal is to provide our clients with guidance on how current conditions in the market could impact their portfolios over both short and long term investment horizons.

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The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

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