In this note we consider how the two branches of the high yield market have responded to the economic and market volatility caused by the enduring COVID-19 pandemic, and how some of the technical features of the market have changed during that period. It looks at some of the factors we believe make HY FRNs attractive relative to fixed rate HY bonds as well as the value we currently see in the HY FRN market overall.
- We don’t believe the lag of HY FRN performance for the year to date is down to fundamental factors, but rather it is a due to some technical factors in the markets, which will likely revert at some point in the future.
- From a risk/reward perspective, we would favour HY FRNs over short-dated HY in the current environment.
- Current spread levels appear to provide for a cumulative default rate well above the historic worst case, suggesting to us that the HY FRN market is therefore attractive.
Read full note here