High yield happenings: there is no 'bloodbath'

British journalists have a colourful term, 'marmalade dropper', to describe a headline so arresting that readers drop their morning toast. By the measured standards of the Financial Times, one recent headline – "Junk debt rout sparks ‘bloodbath’ for credit investors" – surely qualifies.   

If the FT's intention was to prompt clicks from high-yield analysts, I can confirm it worked. But while it’s a vivid piece of imagery, the recent pressures on some CCC rated credits should not be taken as representative of the wider high-yield market. 

1) The risk of default is concentrated in CCC rated bonds

Although the rise in yields has undoubtedly increased the refinancing pressures some borrowers face, we believe the risks are concentrated in a select group of CCC rated issuers.   

Default risk ultimately depends on the interaction between i) refinancing costs, ii) underlying credit quality and iii) sector-specific vulnerabilities. For most BB and B rated issuers, refinancing costs remain manageable. Refinancing risk is much more concentrated in the CCC rated part of the market. Median yields there currently stand at 10.4%, versus a median existing coupon of 6.8%, implying that if these companies needed to refinance today, their borrowing costs would increase by 3.6 percentage points¹.  

And although refinancing costs will vary from one CCC rated issuer to the next, that gap illustrates the significant increase in marginal funding costs they now face. Refinancing at these levels could make existing capital structures increasingly difficult to sustain for those issuers with weaker free cash flows and/or high levels of debt. 

2) CCCs are now only a small proportion of the high-yield market

The wider impact of the stresses emerging in CCC rated bonds should not be overstated. The quality of the high-yield market as a whole has improved materially over time. Immediately prior to the Global Financial Crisis, CCC rated credit represented around 17% of the high-yield market; BB rated bonds only accounted for around 40%. Today, CCC rated bonds account for just 6% of the market while BB rated bonds are comfortably in the majority, accounting for around 63%².

An increase in quality - and a contraction in the CCC rated part of the market - have reduced the chance of a large default cycle

ICE BofA Merrill Lynch Global High Yield Constrained Index as at 30 September 2026. Implied market 1yr default rate is based on S&P median default rates 1981-2021. 

This reflects a structural change in credit markets since the financial crisis. Tighter regulation increased the cost to banks of using their balance sheets to warehouse risk, reducing their willingness to underwrite lower-rated credit³. At the same time, the growth of private credit provided an alternative source of funding for more leveraged issuers who would previously have sought to finance themselves in the public market⁴. 

As a result, even if the number of defaults were to increase, the significantly higher starting quality of the high-yield market, and the dramatically reduced proportion of issuers most exposed to refinancing stresses, should make a broad, systemic default cycle far less likely than in previous downturns. 

3) The CCC universe has changed 

The sector composition of the CCC rated part of the market is quite different today than it was in previous cycles. Historically, cyclical sectors predominated in the CCC rated area of the market so stresses tended to emerge there alongside a broader economic downturn.

In July 2015, CCC rated credit was already weakening ahead of a broader high-yield sell-off. At that time, the stresses were concentrated in cyclical sectors, particularly energy and commodities, and were increasingly associated with concerns about global growth⁵.

Back then, non-cyclical sectors – insurance, media, real estate, technology, telecommunications and utilities – represented only 31% of the CCC universe. Today, however, they account for 50% and much of the stress lies with telecoms and cable ('media') companies6. These businesses do not need a recession to come under pressure: elevated leverage and structurally weaker cash flows are enough to make refinancing increasingly challenging when combined with higher borrowing costs.

Sector composition of the stressed part of the high-yield markets, %

Moody's, Goldman Sachs Global Investment Research.  "Stressed "credits are defined as those with spreads above 1,000bps. As at 8 October 2026. 

At Artemis, we have generally avoided bonds issued by telecoms and cable companies, viewing them as structurally challenged. These businesses still need to address fundamental problems with their cash flows and capital structures.  

Artemis continues to avoid most CCC bonds

So, while refinancing pressure is rising, it is increasingly concentrated in CCC-rated credit. High yield as an asset class is significantly higher quality than it was in previous cycles. And Artemis' high-yield funds are purposefully lighter in CCCs than the wider high-yield market.  

Talk of 'bloodbaths' certainly makes for compelling headlines. And recent moves in certain areas of the high yield market deserve your attention; they reinforce the importance of active bond selection and can provide compelling opportunities. But don’t let scary headlines about one corner of the high-yield market ruin your breakfast. 

Read more about recent happenings in high yield: No FOMO - Investors in high yield should not fear missing the AI boom and A tale of two credit markets