Weekly Market Summary

Extra Credit^*

• Over the past week, high-yield bond spreads widened the most since July and the second most since the pandemic (March 2020) due to turmoil in the U.S. regional and European banking sectors. For context, the past week included the sharpest decline in 2-year Treasury yields since 1987 and the sharpest steepening of the yield curve since the early 1980s as investors quickly recalibrated Federal Reserve expectations.
• The implied default rate for high-yield spreads (533 basis points) is 3.4%, which is slightly above the markets 3% 2023 default forecast. The 25-year average default rate for BB, B, and CCC-rated bonds is 0.7%, 2.6%, and 6.7%, respectively. This is compared to implied default rates—based on current spreads—of 1%, 2.7%, and 6.1%, respectively.
• The implied default rate for bank loans with a spread of 575 basis points is 4.6%, which is above the markets 3.5% 2023 default forecast.
• The trailing 12-month default rate for high-yield bonds and bank loans finished February at 2.12% and 2.26%, respectively, well below their respective long-term average of 3.2% and 3.1%

Sources: JPMorgan. Data as of 3/17/23.