Q1 had an abundance of new issues, and interestingly, the concentration of secured bonds in U.S. high yield issuance was over 50%, nearly tripling the number from ten years ago and well above the historical average. Secured bonds, which are backed by collateral, historically exhibit a recovery rate of ~10-20% higher than unsecured bonds in the case of a default.

We see this as an encouraging development in the high yield space, particular against the backdrop of potentially rising default rates, as the drastically improved secured rate can serve as a buffer against permanent loss associated with defaults. With more issuers transitioning from leveraged loan financing to the high yield market and investors exercising more caution with issuer selection, we believe the share of secured bonds in the high yield space will continue to rise, which can contribute to a stable corporate bond market during an orderly recession.