Junk Debt Outperforms IG by 1.6 Points, Spreads Near 2007 Lows
MCO•High-yield credit spreads have tightened to near 2007 lows while junk debt outperformed investment-grade bonds by 1.6 percentage points so far in 2026, driving year-to-date returns into positive territory. Rising defaults, $62 billion of distressed tech loans and looming rate hikes raise downgrade and volatility risks for MCO’s ratings portfolio.
1. Junk Debt Outperformance
Speculative-grade debt has outpaced investment-grade bonds by 1.6 percentage points in 2026, delivering positive year-to-date returns even as broader bond markets experienced a selloff.
2. Credit Spreads at Low Levels
High-yield credit spreads have compressed to levels not seen since 2007, reflecting investor confidence in debt-servicing capacity despite rising global interest rates.
3. Rising Default and Distress Signals
Approximately $62 billion of leveraged loans in the tech sector are now distressed, and growing stagflation concerns and refinancing challenges pose additional default risks.
4. Potential Impact on Moody’s
Elevated issuance and default activity in high-yield markets could boost Moody’s fee revenue from ratings and monitoring, while spikes in downgrades may increase volatility in its ratings portfolio.
