Default and LME (liability management exercises) activity began 2025 on a quieter note, recording the lowest default and distressed exchange volume for a calendar month since December 2022. However, December saw elevated activity, and three- and six-month rolling totals remain high.
We expect a slight moderation in high-yield bond and leveraged loan defaults in 2025, supported by a resilient economy, strong corporate fundamentals, manageable near-term maturities, improved capital markets, and a smaller distressed universe.
Nevertheless, in an environment of tight spreads and heightened geopolitical risks, we favour defensive sectors. Historical data and bankruptcy filings in the US consistently show that defaults are more prevalent in highly leveraged and cyclical industries.
