High-Yield Selloff Could Get Worse

High-Yield Selloff Could Get Worse

“If the 8% decline in the trade-weighted British pound fails to kick up much dust in U.S. credit markets, it would be a historical outlier,” that’s according to credit analysts at Deutsche Bank, which published a report this week on the possible pass-through effects Brexit could have on US corporate credit.

Based on past events, Deutsche’s analysts point out that since 2000 there has been a strong negative relationship between the British pound’s decline against a basket of five major trading partners and the excess returns of US investment grade bonds. Based on a simple linear regression, the expected decline in IG bonds following Brexit was 2.5%, this time around negative excess returns are only...