High yield credit offers compelling income opportunities, with starting yields in the 7–8% range historically associated with strong forward returns. Strong fundamentals, including low default expectations and solid credit metrics, provide resilience against the modest spread widening expected in 2025. Elevated issuance and a higher-quality index composition further support high yield’s ability to balance risk and reward in a dynamic market environment.
High yield credit enters 2025 with a compelling case for investors seeking attractive income potential. Starting yields in the 7–8% range offer a robust foundation, supported by historical data showing consistently attractive 12-month forward returns at these levels—underscoring high yield’s ability to deliver meaningful total returns even as the market faces evolving technical dynamics.
High yield fundamentals remain solid, providing a strong anchor for the asset class. Leverage has risen slightly to 4x, while interest coverage has softened to 4.7x. Despite these shifts, both metrics remain comfortably within historical norms and reflect the underlying strength of issuers. Low default expectations, supported by above-average credit ratios and improved lending conditions, further enhance the sector’s resilience. U.S. economic growth, though moderating, continues to offer tailwinds for corporate stability.
From a technical perspective, issuance is projected to climb to approximately $300 billion in 2025, driven by refinancing activity alongside a growing focus on mergers, acquisitions, and shareholder-friendly initiatives. While increased supply could lead to modest spread widening, the index’s higher-quality composition—over 50% BB-rated—and shorter duration, help mitigate these risks.
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