Schroders Credit Lens February 2025: your go-to guide to global credit markets
Our monthly analysis highlights the charts and data that matter to investors in corporate credit.
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The February edition of the Schroders Credit Lens highlights how spreads broadly showed no significant reaction to recent uncertainties around tariffs and news flow on AI. USD IG spreads were unchanged on the month, while USD HY and Euro spreads tightened.
Links to all three versions of the Credit Lens are provided below and at the bottom of the page.
Summary:
- Spreads broadly showed no significant reaction to recent uncertainties around tariffs and news flow on AI. USD IG spreads were unchanged on the month, while USD HY and Euro spreads tightened
- Euro spreads have narrowed in recent months but remain relatively less compressed than USD equivalents. Relative to their history, USD spreads are very tight across ratings, albeit CCC are not as tight [Slide 5]
- Yields on USD HY and Euro HY remain notably lower than levels seen during 2022/23. USD IG and GBP IG yields are at similar levels to a year ago despite spreads having tightened [Slide 7]
- January gross new issuance levels were similar to recent years. Over the past year, the USD HY maturity wall has been gradually pushed out, while distress ratio and default rate have fallen to well below their long-run median [Slides 52, 53, 57]
- The credit rating migration picture is mixed. Within USD HY, weaker rated issuers (CCC) have seen downward rating migrations, whereas stronger rated issuers (BB) have seen upward. And in recent years ‘rising stars’ (upgrades to IG) have been outpacing ‘fallen angels’ (downgrades to HY), albeit the trend has slowed [Slides 54-55]
- Overall corporate fundamentals were broadly stable in Q3, despite marginal weakening in some areas:
- Leverage has remained mostly stable in recent quarters, albeit IG has trended upwards over the past three years. IG leverage is relatively more elevated than HY when compared to their respective histories
- Interest coverage rations (ICRs) are down significantly from peaks, with US IG coverage now relatively low, while US HY and Euro HY closer to average levels. However, the very high growth in interest expense has started to slow.
Chart of the month
Relative to their history, USD spreads are very tight across ratings, albeit CCC are not as tight
Source: LSEG Datastream and Schroders. Data as at 31 January 2025. Please see relevant disclaimers on page 67.
Percentiles show where the current spread is relatively to the historical range of spreads, within a range of 0 to 100. The lower the percentile the lower the spread compared to history. AAA rating not shown due to smaller sample size. Data period starts in 2000 for a common start date.
Background on the Schroders Credit Lens:
The Schroders Credit Lens is a comprehensive monthly overview of the global credit market.
It is packed full of data and insights on dollar, euro and sterling investment grade and high yield bonds, and on hard currency, local currency and corporate emerging market debt.
Importantly, as well as assessing each area individually, the Schroders Credit Lens also shows how they compare with each other, in terms of relative attractiveness. This is likely to be of particular interest to those involved in making, or advising on, asset allocation decisions.
The corporate credit section (investment grade and high yield bonds) includes a deep dive into valuations, fundamentals and technicals.
Many investors hedge currency risk when investing in overseas bond markets and hedged yield levels vary significantly depending on your domestic currency. As a result, we have produced three versions of the pack, one each from the perspective of a sterling, dollar and euro based investor.
We hope you find this publication useful and welcome all feedback.
You can download all three versions of the Credit Lens below:
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