Market View I High Yield Monthly Update

Views from our High Yield investment boutique, NCRAM

May 1, 2025

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

US High Yield

After a month of unusual volatility, the US high yield market was flat in April, bringing the YTD performance to 0.95%, according to the ICE BofA US High Yield Constrained Index (HUC0). After President Trump’s tariff onslaught on April 2, markets began to worry about the stagflationary effects of imported and domestic goods prices going up, as volumes and profits were pressured. General disruption and uncertainty were also seen as a threat to growth. Mitigating these concerns, the US is a semi-closed, service-oriented economy, helping to cushion the tariff impacts. Furthermore, the tariffs were never understood to be final, and they were expected to undergo negotiations. As the fears grew, the high yield market hit the low for the month on April 7, with a loss of -2.79% and spread of 461. Subsequently, the market recovered this loss thanks to three primary factors:

• President Trump has shown that, despite tough talk, he is sensitive to the market’s reaction, and he is responsive to corporate lobbying. First, he delayed the extra “reciprocal” tariffs on April 9. Later, he exempted electronics and alleviated the auto tariffs. His advisors have signaled progress in discussions with certain trading partners like Japan, Korea, and India. Admittedly, China remains far from resolved, and the 145% tariff is nearly prohibiting trade with China. Nevertheless, the evolution towards a manageable tariff, perhaps around 10% overall with a higher tariff for China, is underway.
• Companies have started to quantify the effects of the tariffs, which has provided relief to the markets. Some domestically-oriented or technology companies are not seeing effects, while some manufacturing companies are finding ways to mitigate tariffs with alternative suppliers and targeted price increases.
• The Fed began to acknowledge that they would be willing to cut rates if unemployment increased. While a cut is not imminent, the futures market is now pricing in four cuts by the end of the year. This dovish signal also had the effect of reducing the volatility and risk premium in the US Treasury market. For the month, the 10-year US Treasury yield fell by -4 bps and the 5-year US Treasury yield fell by -22 bps.

While the market recovered its losses in April, risk premiums widened, and BBs outperformed while CCCs underperformed. The better-performing sectors in the broader market included Telecom, Publishing, Aerospace, and Building Materials, while the weaker sectors included Energy, Consumer Products, and Retail. The market ended April with a yield of 7.91% and spread of 394.

Looking forward, tariffs are clearly creating disruption in the sectors tied to global trade. Some companies have mitigated the effects with inventories on hand or pre-buying, but the uncertainty is also inhibiting planning. Some discretionary spending is being curtailed, as seen by airline traffic volume. Oil prices have fallen, partially related to the growth outlook and partially related to OPEC supply. At the same time, domestic final demand is steady and healthy. A US recession remains a possibility, but at this time our base case is that the tariffs are moderated over the next few months, and the US experiences a period of slow growth but avoids a recession. Looking out to 2026, we are hopeful that tariffs will have been settled at a reasonable level, and the economy can enjoy some benefits from deregulation, normalization, and perhaps some reshoring.

European High Yield

The European high yield market returned 0.16% in April (EUR, unhedged), resulting in a 0.81% YTD return, as measured by the ICE BofA European Currency High Yield Constrained Index (HPC0). The high yield market experienced significant volatility in the wake of President Trump’s April 2 tariff announcement. At the trough, the European high yield market was down -2.2%, with spreads widening to 435 bps, as the odds of a global growth slowdown increased. The market started to turn as President Trump announced the delay of tariff implementation and tweaks to the tariff policy that sought to blunt the economic impact. By the end of April, the European high yield market had experienced a significant recovery, with a positive total return for the month. We saw decompression during this period, as BBs significantly outperformed and, given the continued rally in the Bund, certain BB high yield bonds appreciated, while Bs and CCCs underperformed. Towards the end of the month, we saw new issues come back to the market, with pricing coming inside initial expectations, showing that demand for European high yield remains strong. The European high yield market ended April with a yield of 6.16% and spread of 380 bps, 100 bps wide of the YTD tights.

Emerging Markets 

Similar to the US high yield market, EM hard currency bonds saw a bout of volatility in April, triggered by the tariffs policy shock from the “Liberation Day” announcements on April 2, but managed to recover most intra-month losses. Some gradual de-escalation of tariff-driven tension from the initial shock, a recovery of US Treasuries at the end of the month, and supportive technicals allowed for a bounce in EM bond prices. EM corporate bonds, as measured by the JPMorgan Corporate Emerging Market Bond Index Broad Diversified (CEMBI BD), ended the month with a -0.43% loss (up 1.98% YTD), and spreads widened 52 bps YTD to 258. EM sovereign bonds, as measured by the JPMorgan Emerging Markets Bond Index Global (EMBIG) ended with a nearly flat -0.08% return in April, bringing the YTD return to 2.26% and spreads 38 bps wider to 335. The investment grade portions of both markets outperformed, with small positive returns in the month.

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.

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