18 Mar 2024 2 min read

Moving on up: is another ‘goldilocks’ year in store for high yield?

By Martin Reeves , Sophia Hunt

Many investors thought 2023 would be a year of defaults and credit pressure. As it turns out, last year might actually be described as a ‘goldilocks’ period for high yield. Could the asset class continue moving on up this year?


2023 saw a notable upward shift in the ratings provided by the core rating agencies (Moody’s, Fitch and S&P), and this momentum could continue into 2025. Contrary to some expectations, idiosyncratic credit risk has been improving, with nearly a fifth of BB and B rated bonds experiencing at least a one-notch upwards shift.

Upgrades now outweigh downgrades within high yield; for double B rated bonds the upgrade ratio (a measure of the relative frequency of credit rating upgrades and downgrades) has gone from 0.3x in 2020 to 2.6x as of December 2023[1].

Furthermore, 14% of these upgrades have been ‘rising stars’ (rising stars can be defined as when an issuer moves from high yield to investment grade, according to its rating). Quite a contrast to 2020, as observed in the chart below:


What changed?

In our view, the rating agencies became too pessimistic when COVID-19 struck in 2020. Then, conversely, the strong economic growth in 2023 that surprised most spurred the agencies to begin revising their tune. This was most noticeable in fallen angels becoming rising stars, with over 25 issuers becoming rising stars in 2023 compared with only 10 fallen angels.

With the strong growth and likely falling rates and spreads, this revision upwards in ratings, in our opinion, will continue in to 2025. This could also support further spread tightening and lower the cost of finance for many companies, especially rising stars. 

We therefore believe 2024 could turn out as positive as the year just past and could potentially bring another 12 months or more of ‘goldilocks’ conditions for the asset class.


[1] Source: LGIM and BAML. Calculated by LGIM using BAML composite rating data. For upgrades and downgrades calculation we used the BAML composite rating for US BB and US B index, looking at one-notch moves.


Martin Reeves

Global Head of High Yield

Martin runs a team of high-yield professionals focused on global opportunities. He joined LGIM in September 2011 from AllianceBernstein, where he worked for 13 years. Martin was a founding director of the European High Yield Association and was Co-Vice Chair of the Association for Financial Markets in Europe’s High Yield Board. He qualified as a chartered accountant with Ernst & Young and gained a MA from St Catharine’s College at the University of Cambridge, where he read Economics.

Martin Reeves

Sophia Hunt

Fixed Income Investment Specialist

Sophia has worked in the finance industry for over 10 years and is a Fixed Income Investment Specialist covering Global High Yield Portfolios. Prior to this, she was a Portfolio Manager’s assistant across active fixed income portfolios. She joined LGIM in 2011 and graduated from the University of West England with an honours degree in Mathematics and Latin American Studies.

Sophia Hunt