Since early 2016, US HY default rates have experienced a sort of “mini –cycle”, peaking at the end of 2016. Nevertheless, the recent rise and fall movements appear mostly commodity driven: default rates would have remained fairly stable if energy and material sectors were excluded from calculations. Looking at default rates from a rating perspective, the picture looks benign with default rates of high quality speculative grade bonds (BB rated) moving to zero in the last couple of years, B rated bonds stabilizing between 0 and 1.5% and CCC-rated names falling remarkably.

Here we try to identify the main drivers of default rates in order to understand if the current low levels are sustainable and ultimately if the corporate bond market can still provide a valuable source of returns for investors.