What goes around...

High yield is underperforming. Thanks to the likelihood of an increase in leveraged buyouts and a flood of General Motors paper into the high-yield index, the market is decidedly bearish. Richard Bravo sounds out some of high yield’s major players to find out if this is just a short-term blip or a real turn in the credit cycle

Spreads in the high-yield sector have widened dramatically since mid-March, in line with high grade, and are now back at 2004 levels. In March, high yield underperformed by 2.4% and in April it underperformed by 2.7%, which has been the sharpest downturn since the middle of 2002.

“You’re looking at a turn in the credit cycle,” says Chris Garman, high-yield credit strategist at Merrill Lynch. “As of November, we started talking up higher-quality allocations.”

Spreads in the high-yield arena