Tim Leary, Senior Portfolio Manager on the BlueBay U.S. Fixed Income team, discusses how the high-yield (HY) market remains robust amid tight spreads and strong inflows, while Trump's proposed 10% credit card fee cap risks industry profitability and credit access, particularly for subprime borrowers.
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Hello & welcome back to The Weekly Fix. My name is Tim Leary & I’m a Senior Portfolio Manager on RBC’s BlueBay Leveraged Finance Team in Stamford, Connecticut.
2026 has picked up where 2025 left off. Spreads are tight, but current yield and short duration assets like high yield & leveraged loans are seeing inflows. The positive technical in high yield specifically is bolstered by tenders & calls which have approached $10bln over the first two weeks of the year. High yield new issuance is off to a reasonable but certainly not overwhelming start to the year. High yield financings tend to be opportunistic in nature. JP Morgan cites that since 2010, monthly gross high yield bond new issuance has exceeded $40bn 27 times, or about 14% of the time. During these 27 months, the average and median high yield bond return was a gain of +0.68% and +0.74%, which are both above the market norms. So new issuance in & of itself is not a reason to fear and while spreads are closer to the tights than the wides, there is justification for it.
In other news, Trump has taken a swing at credit card fees. In a January 9th tweet, he claimed that he would cap credit card fees at 10% for a period of one-year effective January 20th. There’s only so much information one can glean from a tweet, but the response we expect to see from the industry is clearly negative. The reality is that credit card companies aren’t profitable at 10% and while current Return on Assets or ROAs for credit card companies are 2%, a 10% cap could drive those to negative 3 or 4 percent. Today there are more questions than answers. For instance, does Trump even have the ability to push this through? While industry lobbyists have signaled their willingness to work with the administration to ease pressure on consumers, we expect to see legal action taken to try & halt this. Limiting a bank or credit card company to a 10% annual interest expense would likely lead to a severe contraction in access to credit for consumers. Banks will simply stop extending credit to all but the highest rated consumer cohort. Subprime borrowers, the group Trump is trying to help, could be hurt the most. Monoline card issuers will be most impacted, followed by GSIBs (Global Systemically Important Banks), while regional banks tend to have less exposure so the impact should be less. In a twist of irony S.381, the “10 Percent Credit Card Interest Rate Cap Act” was introduced in February 2025 by Senators Sanders & Hawley but couldn’t find bipartisan support. Americans now carry north of $1.23 Trillion of credit card debt with rates on average between 19 and 21.5%. That said, on average consumers are utilizing less than 25% of their available credit card limits. So, while aggregate balances are high, the strong US consumer is far from maxed out on their credit limits. We could see banks look to limit credit limits as a first step to reduce risk. As with all things Trump, this is a negotiation & we’ll see more back & forth before things settle down. JP Morgan reports Wednesday January 14th and you can bet they will be asked about the impact.
As always, thanks for your time & good luck trading.
Key points
Spreads remain tight in high-yield (HY) markets, with strong inflows into HY and leveraged loans. New HY issuance is steady, with historical data showing heavy issuance months often coincide with positive returns.
The proposed credit card fee cap (via Trump’s tweet) threatens industry profitability, potentially driving returns on assets (ROAs) negative.
Banks may reduce credit limits or tighten lending standards in response to the proposal.
