A new report by S&P Global points out that the number of "at-risk" high-yield issuers (i.e. those with a B- or lower rating and negative outlook) soared in 2016 to the highest level since the "great recession" of 2009. As Bloomberg points out, S&P's list of the most "at-risk" corporate issuers included 251 companies and $359 billion of debt which is the highest level since October 2009. As S&P's head of global fixed income research notes, issuers at the low end of the HY rating spectrum have historically been 10x more likely to miss bond payments than other HY issuers.
To be sure, Energy issuers are driving a disproportionate share of HY stress with 12-month trailing default rates increasing to 26.9% at the end of July.
Meanwhile, defaults of Metals and Mining issuers declined somewhat from their peak but remained elevated with 12-month trailing default rates at 16.7% at the end of July.
Of course, none of that data concerns HY investors who have been on a buying spree so far in 2016 pushing spreads back toward all-time lows...
...While HY hedge funds record their 3rd best YTD performance in the past 18 years.
All seems to make sense, right? Deteriorating credit quality equals buying opportunity.