The Credit Edge by Bloomberg Intelligence Fridson Sees High Yield Going Distressed in Recession
May 1, 2025
Marty Fridson, CEO of Fridson Vision High Yield Strategy and a Hall of Fame inductee in fixed income, shares insights on the future of high-yield bonds amidst a looming recession. He predicts an uptick in corporate debt distress, with the high-yield index potentially reaching 1,000 basis points. The discussion covers energy sector bond opportunities, rising default rates, and shifting credit ratings. Fridson also addresses the impact of economic uncertainties and Federal Reserve policies on investor strategies and market dynamics.
AI Snips
Chapters
Transcript
Episode notes
High Yield Spreads Signal Distress
- High yield bond spreads can widen to around 1000 basis points during recessions, indicating distress and higher default risk.
- Despite a slightly better rating mix, there is false confidence that spreads won't reach historical recession peaks.
Flat Supply Amid Growing Demand
- Supply of high yield bonds has remained flat over the past decade despite growing demand due to private credit and leveraged loans.
- This imbalance contributed to persistently tight spreads before recent volatility corrected the market closer to fair value.
High Yield Debt Runoff Limits Growth
- High yield debt faces a roughly 20-25% annual runoff from defaults, upgrades, and retirements.
- New issuance has not grown in recent years, limiting market growth and increasing vulnerability.