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Unease grows in high-yield 

May 15, 2017

Helene Durand, Reuters

Alarm bells have started to ring at the increasingly stretched valuations in the high-yield market, leading some investors to believe that the market could be set for a hard fall.

Spreads on US Double B rated bonds set a new post-crisis low of 231bp this week amid strong demand from investors for higher-yielding debt, while the European iTraxx crossover hit 254.9bp on Friday, close to the post-crisis record low of 2014.

And yet, while many in the market remain confident that very little could get in the way of positive sentiment, investors are increasingly concerned that they are not being adequately compensated for the risk they are being asked to take.

"We think a 450bp spread widening in the next 12 months in high-yield is absolutely possible," said Nannette Hechler-Fayd’herbe, head of investment strategy at Credit Suisse.

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