Declining US growth will drive further IG/HY decompression, says Goldman

The recent underperformance of the North American high yield credit index compared to its investment grade counterpart is caused by declining expectations for economic growth, says Goldman Sachs in its most recent issue of the Credit Line published last week. The bank's analysts believe this decompression will continue and suggest going long CDX NA IG 16 while buying protection on CDX NA HY 16 at a ratio of three to one.

Another idea to play the trend of declining US growth is to short a basket of triple C names. Goldman suggests going short some of the widest names in the high yield universe such as Rite Aid (with a spread of 1,231 basis points last week), Boyd Gaming (1,174bp) and Beazer Homes USA (1,414bp).