Cut high-yield exposure on 2019 fair-value projection

Investors will need much higher yields to justify buying debt in 2019, Strategas argues in a report published on November 15. Strategas uses two models to estimate the fair value spread for the Barclays High-Yield index, a macro regression model and a proprietary individual issuer default risk model. The resulting projection is for fair value in 2019 at or above 400 basis points, with a range around 380 to 440 bps. Compare that with the 2018 range of about 310 to 350 bps and the alarm bells start to ring – could the move be a leading indicator of recession?