There is a crack, a crack in everything, That’s how the light gets in. – Leonard Cohen, “Anthem”
There is a crack, a crack in everything, That’s how the light gets in.
Though U.S. high yield (HY) bonds offered a yield of just over 8% as of Oct. 6, 2026, much of that reflected elevated U.S. Treasury rates rather than unusually generous credit premiums. The broad HY option-adjusted spread is about 300 basis points (bps), around the 25th percentile of its 10-year history. While Ba spreads are only 177 bps, Caa spreads have widened to 986 bps. The gap between the two has pushed the Caa-Ba spread ratio to 5.57x, compared with a 10-year median of 3.14x. The current reading ranks near the 99th percentile of observations since 1994. The ratio has closed above 5x on only 84 trading days in its history, 71 of them in 2026, including the current 48-day streak.
Caa has become a much smaller part of the HY market over the last few decades, accounting for less than 10% of the Bloomberg US Corporate High Yield Index today compared with more than 20% around the Global Financial Crisis. With fewer borrowers in the cohort, individual problem credits can exert greater influence on index-level spreads.
This year’s widening shows how much influence a small number of problem credits can have. Telecom and media represent only about 15% of the Caa cohort but accounted for roughly 70% of the increase in spreads. Three of the four largest contributors are tied to the same leveraged cable and telecommunications system. The concentration argues against treating the current move as broad credit stress.
Nor has the weakness spread meaningfully into the higher-quality HY tiers. Ba spreads are about 177 bps, and B spreads are about 286 bps, leaving a 109-bp gap that remains below a longer-run average of roughly 138 bps. Defaults are still relatively contained, and upgrade-to-downgrade ratios remain above 1. A broader credit warning would carry more weight if weakness began moving up the rating spectrum rather than remaining concentrated among the lowest-rated borrowers.
Investors remain willing to lend to stronger speculative-grade borrowers at historically tight spreads while assigning extraordinarily high costs of capital to a much smaller group of troubled companies. In September, Ba spreads tightened inside 150 bps, their tightest level in more than 20 years.
Caa bonds represent only about 5% of new HY issuance in 2026 thus far, continuing a pattern of limited issuance in recent years. For many of the weakest borrowers, access to the new-issue market appears increasingly limited.
Excessive leverage has amplified pressure in some cyclical businesses, while other issuers face competitive or business-model challenges that might not be resolved by stronger growth alone. Investors appear to be distinguishing between ordinary cyclical weakness and credits where company-specific problems could prove more persistent.
Much of today’s widening can be traced to a handful of problem credits, arguing against treating it as a broad credit alarm. Caa spreads exceeded 1,500 bps in each of the last three recessions, compared with 986 bps today. But the Caa-Ba spread ratio sits near the 99th percentile of its history, making it difficult to dismiss as an index composition footnote. For now, the weakness remains concentrated at the bottom of HY; meaningful widening in B and Ba would change that interpretation.
Between the Lines is a weekly blog by DoubleLine Portfolio Managers Sam Garza, Joseph Mezyk and Quant Analysts Fei He, CFA and Sunyu Wang that breaks down topical macro and market issues. For questions or suggestions please e-mail us at betweenthelines@doubleline.com. The views and opinions expressed herein are those of the authors and do not necessarily reflect the views of DoubleLine Capital LP, its affiliates or employees.
