Total return on the ICE BofA HY index was –0.92% in March, a third consecutive month of negative return this year.
HY spreads had widened from 378bps at the end of February to 422bps on 15 March, only to crash back down to 334bps by early April, surpassing the spread before the onset of the Russia-Ukraine conflict by over 40bps.
HY distress ratio, defined as the ratio of companies whose spreads are greater than 1,000bps, is hovering around 2%, at the low end of historical norms. Net leverage for the HY index remains steady at 3.8x, up marginally from November 2021 levels but below the 4.1x historical average.
At the same time, higher interest rates make access to capital more expensive, and as we have seen from recent new issuance trends, lower-quality companies may have a more difficult time coming to market.
When compared to investment grade, the ICE BofA HY index is currently trading 213bps wider than the IG index.
Three large issuers were upgraded to IG from HY, with a total of USD 27bn of bonds outstanding.
Year-to-date, all sectors posted negative total returns, with transportation, leisure, gaming, and energy outperforming, and food/beverage/tobacco, banks, consumer products, and chemicals underperforming.
From a spread standpoint, energy, telecoms, and media tightened by 74bps, 63bps, and 61bps, respectively in March, versus the ICE high yield index tightening by 36bps.
The defaulted company was Diamond Sports Group, which operates as a sports marketing company and has USD 3bn face value of bonds.
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