MyStratWeekly – April 1st 2025

Topic of the week: U.S. high yield: priced for perfection?

• The high yield market has been affected by the economic uncertainty stemming from Donald Trump's erratic tariff policies;
• Surveys of financial institutions show no signs of credit rationing at this stage. The number of bankruptcies appears to be in line with their average levels;
• Rating agency Moody's projects a decline in default rates this year, unless there is a sharp economic downturn;
• Fundamentals remain solid, particularly with reduced default rates;
• The main risk for this asset class is a correction in valuation levels. BB and B ratings are trading at very low spread levels, close to two-decade lows. When assessed against leverage, creditor compensation appears significantly weak;
• Inflows have supported the asset class, fostering a sense of security and improved liquidity. However, liquidity in this asset class is directional, and the impact of a potential cyclical reversal could be exacerbated by reduced liquidity.

Market review: Liberation or liquidation Day?

• New tariff escalation expected on April 2, with 25% duties on automobiles;
• Rates: the steepening of the curves continues amid budgetary concerns;
• Credit and sovereign spreads remain stable, but high yield spreads are adjusting upwards;
• Gold remains the sole safe haven.

Axel Botte’s and Zouhoure Bousbih’s podcast:

• Review of the week – Liberation or liquidation Day? Economic Outlook and Inflation Expectations in the United States;
• Theme – U.S. high yield: priced for perfection?

Chart of the week

The price of copper has returned to its peaks of 2019-2020, hovering around $10,000 per ton when the metal, considered the "green" metal, was buoyed by a surge in investments in renewable energy.

The current increase appears to be more closely tied to the threat of U.S. tariffs, similar to the duties applied to steel and aluminum imports since March 12.