Weekly Market Summary

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• High all-in yields have created a positive technical backdrop that may keep spreads tight. Treasury yields remain high, particularly in the long end. 10- and 30-year Treasury yields are close to local highs at 4.43% and 4.89%, respectively, and forward markets imply that investors expect yields to remain elevated for at least the rest of the year. Higher yields continue to be a tailwind for spreads; for instance, history shows that 12-month forward total returns for long-end BBBs are positive about 85% of the time when they trade between 6.0% and 6.5%
• Overall, net leverage has been relatively stable across investment-grade corporate and high-yield bonds. Companies have remained cautious since COVID, as many expected a recession in 2022-23 and waited for more clarity on the trade and tax fronts before becoming more aggressive with their balance sheets.
• Institutional flows were robust throughout the recent volatility, as seen in both the primary and secondary markets. This is partially due to 1) defensive positioning ahead of “Liberation Day”; and 2) high cash inflows from coupons (highest index coupons in 10 years) and large maturities from the slew of 5-year bonds issued at the height of COVID in 2020. Furthermore, foreign demand for corporate bonds did not abate in the past few weeks, despite large gyrations on the foreign-exchange side.
• Bank-loan and high-yield bond default rates, excluding distressed exchanges, finished the month at 1.23% and 0.31%, down from 1.24% and up from 0.27% in February. This is also well below the long-term historical default rate of 3.1% for loans and 3.4% for high yield, and the historical post-GFC default rates of 2.3% and 2.5%, respectively.

Sources: Bloomberg and JP Morgan as of 5/19/25.