The current low default rate regime of US HY issuers is the longest in recent decades and has also survived the latest commodity-driven mini cycle: the latter is close to its end and short-term expectations point to a further fall of the DR to around 3% in the coming quarters.

In this piece, we focus on both a one-year horizon and a longer perspective, analysing the most relevant top down and bottom up factors leading US HY extreme credit events. As rising bond yields and monetary policy changes are increasingly on credit investors’ radars, we have analysed the link between real and nominal bond yield levels and the yield curve slope on one side; and speculative grade default rates, on the other, in order to address the question about their potential impact on the current default cycle.