The overview of the Great Tragedy

Market trend Total return : the risk on mode has prevailed over the last month; CCC outperformed BB and B in both € and $ despite negative news related to the coronavirus outbreak . Primary market : Very active September for HY primary markets, with $43bn and €6.7bn priced respectively in $ and in €. The start of October has also proved pretty active, leading to record gross issuance levels on a 12-month rolling basis. However, net of redemptions, supply is far from its peak levels in both currencies, which explain partly the robust appetite in the asset class. Fund flows : $ 4bn net outflows over the past 5 weeks in US HY funds , but the picture has been improving since Oct 8 th and we expect some net inflows in the asset class in the coming weeks. Default rates : Although the annual global default rates have stabilised at 6.4% (unchanged vs. August level), the disparities between Europe and the US persist as the trend is moving in the opposite directions. We see default rates reaching a peak in Q1-21 before edging down. Valuation : Although HY spreads are largely anticipating a peak of default rates that we estimate around the end of Q1-21, we see some further tightening potential in both € and $HY before June 2021, with a supply/demand imbalance in favour of demand likely to stay in the current yield environment and central banks’ support, with default rates being capped by government support measures. This month’s main topic The overview of the recent credit rating agencies’ actions