Credit Suisse Increases 2012 Return Forecast for U.S. Junk Debt

Credit Suisse Group AG (CSGN) raised its projection for U.S. high-yield debt returns as the European debt crisis and sluggish economic growth in the U.S. aren’t hurting the markets as much as expected.

Speculative-grade bonds will now see gains ranging between 8 percent and 11 percent compared with 7 percent to 10 percent, the lender said yesterday in a report. Leveraged loan returns will be between 5 percent to 8 percent, up from earlier projections of 4 percent to 7 percent.

The Bank of America Merrill Lynch U.S. High Yield Master II bond index has returned 9.3 percent this year through yesterday, while there has been a gain of 6.6 percent in the Standard & Poor’s/LSTA Leveraged Loan 100 index. Investors have placed $11.9 billion in funds that purchases high-yield debt this year, Credit Suisse research shows.

“We had maintained projections slightly lower than our forecast models due to concerns about European recession and slowing U.S. growth,” Credit Suisse analysts led by Jonathan Blau wrote in the report. “Even though our concerns were realized, the market disruption has been fairly minor.”

Credit Suisse economists predict U.S. gross domestic product will stabilize at 1.5 percent growth in the third quarter and rise to 2.2 percent in the fourth quarter.

High-yield bonds and leveraged loans are those rated below BBB- by S&P and less than Baa3 at Moody’s Investors Service.

To contact the reporter on this story: Krista Giovacco in New York at kgiovacco1@bloomberg.net

To contact the editor responsible for this story: Faris Khan at fkhan33@bloomberg.net