Scio Capital urges credit investors to reduce risk after September bond sell-off
TLT•Scio Capital urged credit investors to reduce risk after US high-yield spreads widened 49 basis points to 3.12% in September. It recommended moving up the capital stack, increasing asset-based strategies and overweighting countercyclical corporate credit sectors.
1. Credit outlook shifts
Scio Capital said September’s bond sell-off shifted the risk-reward balance toward caution. ICE BofA US High Yield Index spreads widened 49 basis points to 3.12% but remained below their roughly 5% average since 2000, leaving room for further widening as borrowing costs pressure heavily leveraged companies.
2. Defaults and positioning
S&P Global Ratings expects European trailing-12-month speculative-grade defaults to reach 3% by June 2027, up from 2.6% today. Scio Capital recommended moving up the capital stack, increasing asset-based strategies and overweighting countercyclical corporate credit sectors.
