{"text":[[{"start":5.36,"text":"The writer is co-head of global credit and markets at KKR"}],[{"start":9.56,"text":"The high-yield bond market is entering what we believe will be its most active and consequential period in years."}],[{"start":16.88,"text":"High yield was arguably one of the first novel financing channels of the 1980s and has always been a critical part of the leveraged finance ecosystem. However, it had stalled over the past decade with a mere 0.9 per cent annualised annual market growth."}],[{"start":33.92,"text":"What has changed recently is the convergence of factors that are shifting activity more towards bonds: a quiet transformation in quality, an evolution in issuer preferences and technical constraints in the syndicated loan and direct lending market. The conditions that make high yield compelling are not new. What is new is that they are all aligning at once."}],[{"start":56.48,"text":"The “junk bond” label has been left where it belongs — in a different era. With a record 57 per cent of US high-yield bonds and 68 per cent of European high-yield bonds rated BB, the market now sits closer in quality to the investment-grade universe than to the speculative end of the credit spectrum."}],[{"start":75.96,"text":"That shift has been spurred by the migration of “fallen angels” among companies into the high-yield index during and after the Covid-19 pandemic, while successive credit cycles have removed weak borrowers. And the more speculative end of the market has been absorbed into leveraged loans and direct lending."}],[{"start":93.52,"text":"The software sell-off in the first half of 2026 has highlighted how things have changed. Software represents roughly 3 per cent of the US high-yield market, compared with approximately 13 per cent of the leveraged loan market and more than 20 per cent of the direct lending market. When AI-driven disruption triggered a broad repricing of software credit, the equity and loan market felt it acutely, but high yield held up materially better."}],[{"start":119.08,"text":"Two dimensions of the quality shift are noteworthy. The first is duration, which measures a bond’s sensitivity to changes in interest rates. Investors in today’s high-yield market are, on average, exposed to less interest rate risk than at almost any point in the past 15 years."}],[{"start":135.88,"text":"The spread of yields over benchmarks that investors are accepting might appear tight in isolation. But the all-in average yield of about 7.2 per cent today is still attractive relative to historical averages."}],[{"start":148,"text":"The second is structural seniority. So-called first-lien bonds — ranked high in the claims on a borrower’s assets in distress — now represent 33 per cent of the market, an all-time high. Total “secured exposure” of bonds backed by collateral has reached 36 per cent, partly driven by the rapid growth of data centre financing from BB-rated issuers, which are now about 3 per cent of the index and are almost entirely secured. The index is not just higher quality by rating; it is better protected structurally."}],[{"start":180.92,"text":"The quality story carries into reporting and disclosure. As high-yield bonds are issued under the Securities and Exchange Commission’s rule 144A, issuers are subject to a higher standard of transparency than some rival financing options, including offering memoranda, quarterly earnings calls and, in many cases, full annual and quarterly filings."}],[{"start":201.92,"text":"High yield has not historically been the first call for many private equity firms that own companies. The proliferation of direct lending offered bilateral negotiations, floating rate structures and no registration requirements. And the growth of the market for collateralised loan obligations (CLO) — instruments that slice debt into securities of varying risk — ensured reliable demand for leveraged loans. Those conveniences often made bonds an afterthought."}],[{"start":229.04,"text":"But the guardrails that once deterred many private equity firms — fixed-rate financing, protection from issuers redeeming a bond early, a diversified and durable investor base that prices risk when others step back — are precisely what the market is yearning for right now. As CLO appetite has grown more selective and direct lending terms have tightened, the execution certainty that the bond market offers has become increasingly attractive to issuers."}],[{"start":254.8,"text":"For investors, the case for high yield today is not a bet that spreads will compress from current tight levels. It is more that the market offers access to higher-quality corporate credit at a yield that remains compelling in absolute terms and increasingly attractive on a risk-adjusted basis. For issuers, it means certainty of execution and access to a deep, diversified investor base. The case for high yield’s second act has never been stronger."}],[{"start":280.96,"text":"KKR is an investor in credit markets globally, including high-yield bonds"}],[{"start":285.76,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1785747135_7020.mp3"}