May 17, 2023

Thoughts on HY Research?

I have an offer in a HY research buyside research role at a large AM. I am particularly wondering what everyone’s thoughts are on the HY market and whether it is boring when rates become lower again, you’re just flipping new issues, etc? Or am I oversimplifying things and HY bonds at 4.5% are just as interesting as private credit?

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Obviously I am biased as it’s what I do but I think it’s very interesting work. PC gets touted as the sexier side, which there is definitely an argument that it is, but if you enjoy thinking about things from a credit perspective and also enjoy the public markets/trading dynamic of it, you will find the work interesting. The way I see it is on the private side you see less transactions through but go more in depth vs. the public side you get more volume but cannot go as in depth due to information/timing constraints, with secondary opportunities as well. More deals have been heading to the private side but ultimately there will still be a need for tradeable credit and I think the HY market is better positioned than being in a pure LL seat to face PC taking share. But at the end of the day higher rates is good for all credit, so building the skillset in one way or another is valueable.

I don’t think we will see rates come down to the low levels we have seen in recent history for a bit, so perhaps it that also makes it a sexier time to be starting this career. But regardless if the base rate is 0% or 5%, your mandate as an analyst in terms of the research process and relative value is largely unchanged, so I would think less about that and more in terms of the actual work.

Just curious. In private credit we spend a lot of time with legal given most of our stuff is primary, and whenever we see a doc come through with precedent based on a large cap HY/LL doc it is always horrific beyond belief. Do you spend a lot of time on legals or do you just bank on liquidity if things go south?

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