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January 2025 US High Yield Market Outlook & Positioning
Friday 10 January 2025
Investment Talks
January 2025 US High Yield Market Outlook & Positioning
January 2025 | Although full year 2024 returns for High Yield were strong and spreads tightened during the fourth quarter, fourth quarter returns were weak with losses in both October and December due to yield curve headwinds. While defaults have moderated over the last few months, Moody’s recently increased its year-end global speculative grade default by issuer forecast to 4.6% on weaker US employment. Moody’s also projects the global default rate by issuer count to decline steadily across 2025, reaching 2.7% by next November.
01 | 2024 High Yield Index performance was strong, driven by spread compression in spite of rising sovereign yields.
02 | Although spreads compressed during the fourth quarter, returns were minimal due to sovereign headwinds.
03 | CCCs and Distressed outperformed as spreads compressed and some oversold issuers reported positive idiosyncratic developments.
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Unless otherwise stated, all information contained in this document is from Amundi Asset Management as of September 30, 2024. Diversification does not guarantee a profit or protect against a loss. The views expressed regarding market and economic trends are those of the author and not necessarily Amundi Asset Management and are subject to change at any time based on market and other conditions, and there can be no assurance that countries, markets or sectors will perform as expected. These views should not be relied upon as investment advice, a security recommendation, or as an indication of trading for any Amundi product or service. This material does not constitute an offer or solicitation to buy or sell any security, fund units or services. Investment involves risks, including market, political, liquidity and currency risks. Past performance is not indicative of future results. Amundi US is the US business of Amundi Asset Management.
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Unlike the US Treasury curve, the tax-exempt curve remains significantly positively sloped, leading to elevated yields in core and longer-duration municipal strategies. The high yield municipal market, in our view, displays a potential opportunity to provide not only tax-efficient dividends, but also pockets of price appreciation found in select sectors and security themes. In general, we expect credit stability in 2025, with potential policy shifts creating both credit negatives and positives. Some of these policy impacts may be felt in port issuers: broadly applied tariffs could impact bottom lines; hands-off energy policy could benefit traditional energy-producing local agencies and states; and Medicaid and Medicare reimbursement eligibility rate shifts could negatively impact smaller regional health care systems.
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