Benbow agreed. “Many of the most distressed companies have been cleansed from the high yield market through various downturns experienced since 2008, such as the mini energy crisis in 2015–2016, as well as the global pandemic in 2020," he said.
“This has resulted in a relatively high-quality high yield market with few distressed situations. While the next economic slowdown could result in downgrades, the overall high-quality starting point may help limit distress.”
Della Vedova pointed out that current default rates in US and European high yield stood at ultra low levels of 0.36 per cent and 0.01 per cent.
This was not sustainable in an environment of slowing growth and high inflation, so defaults would inevitably rise, he said.
He added: "Indeed, current market valuations imply a global high yield default rate of 3.9 per cent over the next 12 months. However, we believe the market valuations are being driven partly by general macroeconomic concerns and the actual default rate is likely to come in lower."
carmen.reichman@ft.com
