The recent tightening reflects improving risk sentiment following the still fragile ceasefire and reduced geopolitical risk premium. If we look specifically at the most vulnerable tier of the high-yield market, the share of distressed high yield securities, defined as those with an OAS (Option-Adjusted Spread: the yield premium over risk-free rates accounting for embedded options) exceeding 2,000 bps, fell to 2% in May. This compression followed a 47-bp tightening triggered by a geopolitical rally.
While this segment highlights potential credit events, the 2026 default rate is projected to remain below 3% (including Liability Management Exercises). The share of stressed securities, those with an OAS between 1,000 and 2,000 bps, also declined to 3%. This marks a steady reduction from March’s 3.7% and represents a significant improvement compared to the 4.5% level seen in 2024.
