We expect business fundamentals to improve in the coming months, especially for low-rated companies. The ratings momentum in HY, as measured by downgrade/upgrade volumes, has already turned positive.
In addition to a rebound in profits, companies should continue to benefit from historically attractive financing conditions. Demand for corporate debt is strong from yield-hunting investors. We expect lowrated issuers, in cyclical sectors in particular, to show more balance sheet discipline and to start a deleveraging cycle. M&A activity will be a key variable to monitor this year for well-rated companies.