Citi: High Yield Bond Investing Nearing an End

“The credit clock is ticking and the time for high yield investment may nearly be up, according to Citi’s Matt King and Hans Lorenzen.

King and Lorenzen believe that, based on the balance sheet status of corporations, the credit cycle is clearly moving forward leaving behind the opportunities for high-yield bond investors.

From Citi:

Putting together the anecdotal information and the statistics, in US high grade, the bondholder-unfriendly stage of the leverage cycle seems only a few quarters away. The pick-up in M&A is US specific (with European companies still being more cautious), and in high yield we are less concerned in any case. But the workings of the leverage clock therefore mean that the underperformance of credit relative to equities, which began in March, is probably only a foretaste of further underperformance to come (see Figure 49). It is not so much that we expect a violent turnaround; it is simply that we see little reason to chase the market here, and quite a few reasons to lighten up.”

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