HY Market Weekly Minutes: Playing Defense with CCCs? (January 27, 2025)
A Brief Recap of Last Week's High Yield Market Performance
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Remember when everyone said higher rates would kill high yield? Well, CCCs just outperformed BBs for the second straight week. While Treasury yields bounced around on mixed Fed signals, the riskiest part of the market keeps grinding higher.
A deeper look at the technicals reveals why: spreads are so compressed that further tightening looks unlikely—forcing investors to focus purely on carry. In this environment, the math changes. When your primary return driver is yield rather than spread compression, those juicy CCC coupons start looking a lot more attractive.
And the implications run deeper: lower-rated bonds are showing surprising resilience during periods of volatility. When high yield drops less than IG during a Treasury selloff, something optically appears to have shifted.
This resilience faces an early test this morning however, with tech futures down sharply on DeepSeek’s AI disruption and risk-off sentiment driving US 10-year yields 11bps lower. China’s unexpected factory contraction in January adds another layer of uncertainty to an already complex market backdrop.
The real question? Can this relationship between risk and safety survive the week ahead?
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