Global high yield markets had a modestly weak quarter overall, with spreads widening by 26 bps over the period. Total returns (in $ terms) were negative at -0.35%.
Even as the global economic recovery continues and with strong 2Q corporate earnings, risk-off sentiment connected to the regulatory crackdowns in China, more hawkish than expected outcomes at the Fed and the Bank of England meetings, and concerns around high inflation readings all led to negative risk sentiment over the quarter.
Emerging market HY underperformed the most due to developments in China, sparked by Evergrande - the second largest property developer in China - missing a coupon payment near the end of September. Even though market participants expect that its likely restructuring would lead to volatility and weakness in China’s HY property sector, spillover effects to broader high yield markets are expected to be quite limited, especially regarding any financial or portfolio contagion.
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