FIXED INCOME
High Yield: Key takeaways
Market base case is for a carry driven year : Total Return ~ 5%
We don’t expect a pickup in defaults in 2025, HY Euro hit 2.5% in 2024 and has probably peaked
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Start from a low level of credit vol : We are more cautious
Worst case 2025: 4.5% if all distressed bonds were to default
Low uncertainty on net supply : Refinancing needs (30+55bn€) but at a limited additional issuance cost (70bp) Any imbalance will come on the demand side, after large inflows in 2024 (12bn€+) and less potential for rising stars
We believe fundamentals are resilient and that ratings should hold despite weak EU growth
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Spread break-evens offer some downside protection: ~100bp on par with 5yr average
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Source: Rothschild & Co Asset Management – 31/12/2024
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