Market View I High Yield Monthly Update
Views from our High Yield investment boutique, NCRAM
July 1, 2026
David Crall, CFA
CEO & CIO, Nomura Corporate Research and Asset Management Inc.
US High Yield
The US high yield market rose 0.25% in June, bringing the YTD return to 1.89%, according to the ICE BofA US High Yield Constrained Index (HUC0). During the month, the new Fed Chair Kevin Warsh gave his first public comments, and the most notable takeaway was a strong commitment to price stability. He has also expressed a desire to limit forward guidance from the Fed and, in due course, reduce the size of Fed’s balance sheet. Collectively, this approach is viewed as hawkish, and accordingly, expected real Treasury yields increased (especially on the shorter end), long term inflation expectations declined, the US dollar strengthened, and gold and Bitcoin fell. This moderation of inflation expectations was supported by the Memorandum of Understanding signed between the US and Iran, which led the spot price of WTI crude to fall from $87 to $69, reducing the inflation impacts of higher oil prices. While rising real Treasury yields and falling inflation expectations mostly offset each other in the longer end, 5-year Treasury yields climbed 8 bps to 4.22%. US high yield spreads were stable, leading the yield to rise a little, modestly suppressing returns. During the month, the ratings categories performed similarly, though Bs performed the best. The US high yield market ended the month with a yield of 7.15% and spread of 275.
Looking forward, the US economy remains in a steady growth phase. In general, the AI boom remains intact, and the hyperscalers continue to express a need for more computing power. At the same time, AI is a fast moving industry, with unanswered questions about what services will find recurring demand, who will be the winners among the providers, and who will accrue the economic value. The AI boom has been creating its own wave of inflation in semiconductor and power prices, exacerbating inflation caused by the tariffs and Iran war. As inflation has been trending up this year, with trailing-12-month core PCE reported at 3.41%, Warsh’s emphasis on price stability strikes an appropriate tone, and the futures market is currently expecting one to two Fed rate increases this year. At the same time, inflation related to oil and tariffs may ebb, and we believe it’s unclear if the Fed will raise rates by year-end. As these factors come into focus, the economy should continue to grow, and the yield on US high yield should help the asset class generate an attractive risk-adjusted return for the remainder of the year.
Global High Yield
The global high yield market returned 0.42% in USD hedged terms in June, bringing the YTD return to 2.48%, as measured by the ICE BofA Global High Yield Index (HW00). The global high yield market was steady in June as the market digested the implications of the Iran ceasefire. While the certainty of a sustained ceasefire remained somewhat elusive, the biggest takeaway was the agreement to reopen the Strait of Hormuz. This step has significantly alleviated pressure on the energy markets as global inventories have continued to decrease. We expect significant ebbs and flows in the negotiations up to the 60-day deadline, but the market continues to view the probability of long-term or permanent disruptions to energy flows as low.
In this environment, overall global spreads remained relatively flat, as European rates rallied on energy-related relief, and US rates increased slightly. By rating segment, BBs and Bs performed inline. By region, European high yield outperformed in June, as the Bund continued its downward trend even as the ECB raised rates during the month, while the probability of a second rate hike during the year has decreased on the resumption of commodity flows from the Middle East. In addition, the European high yield asset class continues to see strong inflows, leading spreads to decrease by 15 bps during the month. Emerging markets performed well as that asset class benefited from attractive carry, resilient fundamentals, and sustained demand from crossover investors. The US high yield market lagged the other regions somewhat during the month due to modestly rising Treasury yields. By sector, Integrated Energy, Travel & Leisure, and Building Materials performed well, while Wireline Telecom and Media Content lagged.
As we approach Q2 earnings for the market, earnings outlooks will be key, as Q2 results will have been disrupted by the US-Iran conflict. We will look for insights on how quickly supply chains may return to normal in commodity sectors such as Chemicals, Packaging, and Energy, while the consumer should benefit as gas prices come down for the summer and sectors such as Retail, Airlines, and Travel can recover. As we look forward through the summer, the market will continue to digest the new Fed regime under Chair Warsh and the continued progress of the US-Iran negotiations. We also see midterm elections as coming into increased focus, as well as the ever-present threat of renewed tariff actions from the Trump administration. Given the overall economic and credit trends in this environment, we believe global high yield is well-positioned to generate an attractive risk-adjusted return.
Disclosures
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