Reasons for Optimism in the High Yield Market This Year

Posted on February 17, 2021

After a wild ride for the high yield market in 2020, what does 2021 have in store?

At DDJ, we are cautiously optimistic. As DDJ’s President, CIO, and Portfolio Manager David Breazzano shares in his 2021 outlook, the high yield market offers attractive relative value and improving fundamentals; however, investors should expect periods of heightened volatility to persist:

"Given the rate environment, low to negative absolute yields across the fixed income spectrum, wide-open capital markets, and reasonable valuations in the high yield market, I am cautiously optimistic about high yield performance in 2021. Credit spreads across ratings tiers declined considerably in the fourth quarter and ended 2020 on the ‘tighter’ side of historical observations. However, the high yield market continues to offer investors attractive relative value compared to other alternatives.Additionally, I believe that there is room for spreads between higher-rated and lower-rated credits to further compress in the year ahead, which is customary following a recession as economic activity continues to improve. This improvement should bolster issuer fundamentals and likely lead to continued compression in spreads, especially across the businesses within the sectors most affected by the pandemic-induced contraction.

"While high yield markets are unlikely to experience the type of spread volatility witnessed in the first two quarters of 2020, uncertainty around vaccine roll-out has the potential to inject instability into the market. This point remains especially true during the first half of 2021."


For more insight into DDJ’s view on what lies ahead for the high yield bond and leveraged loan market in 2021, as well as a look back at the intricacies within those markets during 2020, download our full CIO Perspective below.

David Breazzano, DDJ’s President, CIO and Portfolio Manager, offers some perspective on 2020 and the Outlook for 2021..


DDJ Capital Management is a privately held investment manager for institutional clients that specializes in investments within the leveraged credit markets. Since our inception in 1996, DDJ has sought to generate attractive risk-adjusted returns for our clients by adhering to a value-oriented, bottom-up, fundamental investment philosophy.  DDJ has extensive experience investing in securities issued by non-investment grade companies within the lower tier of the credit markets, including high yield bonds, bank loans and other special situation investments.

The information and views expressed herein are provided for informational purposes only, and do not constitute investment advice, are not a guarantee of future performance, and are not intended as an offer or solicitation with respect to the purchase or sale of any security. The inclusion of particular investment(s) herein is not intended to represent, and should not be interpreted to imply, a past or current specific recommendation to purchase or sell an investment. Any projections, outlooks or estimates contained herein are forward-looking statements based upon specific assumptions and should not be construed as indicative of any actual events that have occurred or may occur. This material has been prepared using sources of information generally believed to be reliable; however, its accuracy is not guaranteed. Investing involves risk, including loss of principal. Investors should consider the investment objective, risks, charges and expenses carefully before investing with DDJ.

Past performance is not guarantee of future returns.