Key takeaways
- Recent weakness in CCC-rated credit does not tell the whole story.
- Higher yields are exposing businesses that were overly reliant on cheap refinancing.
- The same rise in yields, however, is creating the potential for more attractive returns from high-yield companies with strong balance sheets.
A client recently quizzed me about Virgin Media O2. Why did its bonds fall so far over the summer? What might a restructuring look like? And, if a restructuring were to happen, how would it contribute towards default statistics for the wider high-yield market?
That got me thinking about a broader subject. There has been a lot of weakness at the bottom end of the high-yield market recently. And, at first glance, charts showing how spreads have widened appear to tell an unpleasant story.
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