Global high yield markets saw a sharp sell-off in June, taking year-to-date (YTD) returns deeper into negative territory to -16.80%. Persistent inflation through 1H, and a more front-loaded response from the Fed drove bond yields higher.
However, this has now led markets to price in the probability of a slowdown and even possibly a recession. Upside surprises on core US CPI lately, along with weaker manufacturing activity and outlook, as well as declines in consumer confidence led to fears that the past few months’ tightening in financial conditions has already led to a slowdown in activity taking hold.
Continued geopolitical risks and high energy prices have been adding another sizable layer of risk.