1Q26_ Quarterly Outlook Report_Final_EN - Flipbook - Page 117
T H E P LUMB LI N E | A RETU RN TO F I RS T PRI N CI PL ES
High yield credit tends to closely track equity market performance
YoY return (3-mth moving avg)
80%
60%
40%
20%
0%
-20%
-40%
-60%
1991
1995
1999
2003
2007
High yield
2011
2015
2019
2023
S&P 500
Source: Bloomberg Finance LP, Scotia Wealth Management
Historical credit spread percentile rank: both investment grade and high yield credit spreads
are in the lowest quartile of their historical range
Investment grade
High yield
Source: Bloomberg Finance LP, Scotia Wealth Management
Investment-grade credit, by contrast, offers a more attractive balance between income and
quality. As discussed in the Investment Strategy section of this report, interest coverage ratios in
the investment-grade universe are roughly twice as high as those in high yield and ratings trends
for the former have steadily improved with the upgrade-to-downgrade ratio strengthening in
recent years. At the same time, investment-grade yields are above their long-term historical
average while the yield premium offered by high yield is below its historical average, reducing the
incentive to move down the credit spectrum at this stage of the cycle.
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