In January of this year, high yield bonds were not very enticing. The option-adjusted spread of the ICE BofA U.S. High Yield Index was at an almost 20-year tight of 258 basis points.

Ten weeks later, in the aftermath of President Donald Trump’s April 2 tariff announcements, that spread had almost doubled to 461 basis points. Similar spread-widening has been seen in the Euro and Global High Yield indices. Those spreads have come in a little since, but all-in yield remains around 8%.

This looks like much better value—but, then again, the world does appear to have fundamentally changed. Do current spreads compensate for the heightened risks to trade and growth?

Impacts on Default Estimates

The short answer is yes, we believe so.

Once a quarter, our Non-Investment Grade research team estimates the likelihood of default for every issuer in the high-yield and loan indices. For our latest estimates, we reduced our U.S. GDP growth assumption to 0 – 1% and our European growth assumption to -1 – 0%. We also modeled the impact of the current global tariff regime. That pushed our estimate of the cumulative high-yield default rate for 2025 and 2026 to 3.75 – 4.75%, an increase of about 100 basis points on our estimates heading into this year.

You can now read the full whitepaper at the link below