For the past months, High Yield (HY) debt continued to register very decent returns for investors. However, as I have opined in my previous writings, asset managers and investors alike have continued to question the sustainability of these returns given the fact that yields tightened albeit to record lows, but yes to extreme levels. This week, we witnessed the first notable sell-off since the beginning of the year.
Over the past week, in my view the main triggers for the said correction are both idiosyncratic risk and the debate on the US tax bill and how the latter can impact HY issuers. Let’s look at both arguments chronologically by looking initially at the market correction.
As many might be aware, we are in quarter three earnings season, in which both US and European HY major issuers are reporting their financial performances. In addition, over the past week we have also experienced specific negative news in the B rated segment in relation to both operational and capital structures. Few examples, which come into mind in Europe, are Astaldi, the Italian based Construction Company, which postponed its quarter three results by one week and is seeking a capital increase to...
