Market View I High Yield Monthly Update

Views from our High Yield investment boutique, NCRAM

April 1, 2026

David Crall, CFA
CEO & CIO, Nomura Corporate Research and Asset Management Inc.

US High Yield

The ICE BofA US High Yield Constrained Index (HUC0) slid -1.19% in March, bringing the YTD performance to -0.55%. The sell-off was caused by the Iran war, and Iran effectively closing the Strait of Hormuz. The prospect of an energy shortage caused the spot price of WTI oil to jump from $67 to over $100, while European natural gas and LNG prices are up 50% to $14/mmbtu and $17/mmbtu, respectively. The war and rising energy prices had a noticeable impact on the US Treasury market, due to rising inflation expectations, the fear that central banks will need to be more hawkish, and anticipated fiscal spending for the war, leading 5-year Treasury yields to increase 44 bps and 10-year Treasury yields to increase 38 bps.

While US high yield suffered from the Treasury sell-off, spread widening was relatively muted, rising only 16 bps. High yield spreads have been relatively well-controlled for a few reasons:

• The US economy is a large energy producer and thus relatively insulated from higher energy costs. For example, US natural gas prices have largely remained unchanged around $3/mmbtu, reflecting ample inventory in storage, strong production, and limited ability to export additional natural gas. In addition, the US economy has positive forces such as tax cuts mitigating the higher energy costs.
• The US high yield market is increasingly a higher credit quality market, with 59% of the market rated BB, and it has substantial Energy sector exposure of 11%.
• The war is expected to end within one to three months. The Trump administration is reportedly looking for an off-ramp, and for this reason the future price of oil is not up as much as the spot price, with 12-month WTI up to $70.

Among credit quality segments, B-rated bonds performed the best in March. Rising Treasury yields led BBs to underperform, while CCCs lagged on fears of economic disruption. Travel-related sectors and interest rate sensitive industries like Building Materials were laggards on the month. In addition to the Energy sector, non-cyclicals such as Cable TV outperformed. Technology also recovered somewhat from February’s sell-off related to AI disruption concerns. The US high yield market ended the month with a yield of 7.44% and spread of 328.

Beyond the war, outflows among private credit BDCs were also a key topic during the month. While a slowdown in demand for private credit might hurt the economy on the margin, we don’t expect substantial contagion from private credit to the broader risk markets. In particular, the vast majority of bank exposure to private credit funds and firms is senior and overcollateralized, and we don’t expect widespread losses for the banking system.

Global High Yield

The global high yield market returned -1.59% in March, bringing the YTD return to -0.57% (USD hedged), as measured by the ICE BofA Global High Yield Index (HW00). Global high yield felt the impact of the Iran war during the month, as rates sold off and global energy prices skyrocketed. US high yield was the best performing region, as the economic and inflationary impacts of the Middle East conflict are perceived to be less severe due to US energy independence. The European high yield market underperformed as higher energy prices are expected to negatively impact economic growth, given the region’s greater dependence on imported natural gas, while higher inflation increases the probability of a hike in rates from the ECB. The ECB will seek to avoid the mistakes of 2022 in letting inflation run rampant after the start of the Ukraine-Russia war. As a result, we saw weakness across the credit spectrum in European high yield, with spreads widening from 287 bps to 349 bps. Emerging markets also posted a negative return, as Middle Eastern real estate sold off significantly as a result of Iran’s attacks on GCC nations during the month. However, overall technical demand in EM remained healthy, as the sell-off has been orderly and liquidity has been maintained in the market. As of the end of March, the overall spread for the global high yield market was 343 bps, only about 30 bps wider from the beginning of the month, which signals continued confidence in the health of the credit conditions in the market and resilience to most impacts from the Iran war. With overall yields now at 7.31%, we believe this all-in yield provides significant cushion for continued geopolitical volatility and attractive upside in the scenario that the conflict in Iran is resolved in a timely fashion.

Market Outlook

Looking forward, while the war is disruptive and may have unpredictable effects, NCRAM’s base case is that the conflict in the Middle East will de-escalate during the second quarter. Polymarket odds suggest that hostilities will cease in the May-June time frame. In this scenario, we believe the US economy will continue to grow at over 2% this year, and credit conditions in the US high yield market will remain stable. Energy prices will likely decline at the conclusion of ongoing military activity, but will probably settle at a higher level vs. pre-conflict due to the risk of renewed attacks on energy facilities or transport. This could have a modest forward impact on growth and inflation. NCRAM views the Energy and Aerospace & Defense sectors as the key beneficiaries of tensions in the Middle East. Conversely, airlines, cruise lines, hotels and consumer-driven segments are at risk from rising energy prices and a potential slowdown in travel demand, and housing-related issuers would suffer from persistently higher mortgage rates. We are closely monitoring developments associated with the conflict and its impact on energy prices, economic growth, inflation, and corporate profitability. High yield issuers continue to generate strong operating earnings, balance sheets are solid, and the market’s aggregate credit quality remains at record high levels. If the Trump administration’s ongoing efforts to find an off-ramp to the conflict are successful, the first quarter’s increase in yield and spread creates a more compelling entry point for US high yield.

Selected Credit Market Statistics

As of March 31, 2026

Sources: NCRAM, ICE BofA US High Yield Constrained Index (HUC0), ICE BofA Global High Yield Index (HW00) in USD hedged terms, Morningstar LSTA US Leveraged Loan Index (LSTA), Bloomberg, JPMorgan default rates.

Disclosures

This document was prepared by Nomura Corporate Research and Asset Management Inc. (NCRAM) and is issued and distributed by Nomura Asset Management Europe KVG mbH – UK Branch.

All information contained in this document is proprietary and confidential to NCRAM. All opinions and estimates included herein constitute NCRAM’s judgment, unless stated otherwise, as of this date and are subject to change without notice. There can be no assurance nor is there any guarantee, implied or otherwise, that opinions related to forecasts will be met. Certain information contained herein is obtained from various secondary sources that are believed to be reliable, however, NCRAM does not guarantee its accuracy and such information may be incomplete or condensed. Historical investment performance is no guarantee of future results. There is a risk of loss. Strategy performance references are based on gross of fees performance.

Certain information contained in this document contains forward-looking statements including future-oriented financial information and financial forecasts under applicable securities laws (collectively referred to herein as forward-looking statements). Except for statements of historical fact, information contained herein constitutes forward-looking statements. Although NCRAM believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, it can give no assurance that forward-looking statements will prove to be accurate. These statements are not guarantees of future performance and undue reliance should not be placed on them. Forward-looking information is subject to certain risks, trends, and uncertainties that could cause actual performance and financial results in future periods to differ materially from those projected. NCRAM undertakes no obligation to update forward-looking statements if circumstances or NCRAM’s estimates or opinions should change.

This document is intended for the use of the person to whom it is delivered. Neither this document nor any part hereof may be reproduced, transmitted or redistributed without the prior written authorization of NCRAM. Further, this document is not to be construed as investment advice, or as an offer to buy or sell any security, or the solicitation of an offer to buy or sell any security. Any reproduction, transmittal or redistribution of its contents may constitute a violation of the U.S. federal securities laws.

Performance data is calculated by NCRAM based upon market prices obtained from market dealers and pricing services or, in their absence, an estimate of market value based on NCRAM’s pricing and valuation policy. Performance data stated herein may vary from pricing determined by an advisory client or by a third party on behalf of the advisory client. Performance data set forth herein is provided for the purpose of facilitating analysis of account assets managed by NCRAM, and should not be used for the purpose of reporting or advertising performance of specific account portfolios to account beneficiaries or to third parties.

An investment in high yield instruments involves special considerations and certain risks, including risk of default and price volatility, and such securities are regarded as being predominantly speculative as to the issuer’s ability to make payments of principal and interest.

A copy of NCRAM’s Code of Ethics and its Part 2A of Form ADV are available upon request by contacting NCRAM’s Chief Compliance Officer via e-mail at [email protected] or via postal mail request at Nomura Corporate Research and Asset Management Inc., Worldwide Plaza, 309 West 49th Street, Compliance Department, Attn: Chief Compliance Officer, New York, NY 10019-7316.

The views and estimates expressed in this material represent the opinions of NCRAM and are subject to change without notice and are not intended as a forecast or guarantee of future results. Such opinions are statements of financial market trends based on current market conditions. The views and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only, and is not intended to provided, and should not be relied upon as legal or tax advice.

The contents of this document are not intended in any way to indicate or guarantee future investments results as the value of investments may go down as well as up. Values may also be affected by exchange rate movements and investors may not get back the full amount originally invested.  Before purchasing any investment fund or product, you should read the related prospectus and / or documentation in order to form your own assessment and judgement to make an investment decision.  This report may not be reproduced, distributed or published without the written permission of Nomura Asset Management U.K. Limited.  Nomura Asset Management U.K. Limited is authorised and regulated by the Financial Conduct Authority.