Credit spreads have continued to tighten across the board, as IG spreads are at lowest since 1998 and HY credit spreads fell to their tightest since 2006, preceding their rise into the GFC. Risk assets have been greatly outperforming since the 2024 US Presidential election with equities and cryptocurrency seeing large gains. Economic data has also continued to stay resilient and perhaps that's the most significant contributing factor to high yield spreads in particular continuing to fall. It's worth noting during the period preceding the GFC, markets became extremely comfortable with a "soft landing" when the Fed began a significant easing cycle. A similar aura of complacency appears to be taking place today and while we don't expect a repeat of the GFC market crash, we believe high yield spreads are in the process of bottomming.
High yield spreads continue to shrink