Yields of US short term low grade bonds broke through the 10-years average of 5.7% and reached a level of 6.9%. Since the Fed signalled a faster pace of interest rate increases in the coming months, investors divested longer term bonds in favour of their shorter term counterparts. The yield curve steepening by more than 200 bps over the last 6 months (please see chart 2 in the Alternative Credit Letter) has been the main driver of the increase of the yield level. Another driver has been the investor’s uncertainty about whether the economy and company earnings can withstand an aggressive Fed tightening to fight inflation. Absent of a severe recession ahead of us, yields on low grade bonds are back at attractive levels.