Capturing Value in Lower-Rated U.S. High Yield

PGIM Fixed Income

January 2020

By Robert Cignarella, CFA, Head of U.S. High Yield

When evaluating allocations in the current late-cycle environment, the U.S. high yield market remains vastly bifurcated with overvalued BB-rated issues and some deeply discounted weaker B and CCC-rated names.

Granted, there are risks to overweighting the lower-quality portion of the market, but given our base case for a prolonged credit cycle, the larger risk to performance could be maintaining overweights to the BB-rated segment of the market, particularly as lower-quality credit spreads imply a far higher default rate than we expect in 2020.

 

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