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Schroders Credit Lens February 2024: your go-to guide to global credit markets

Our monthly analysis highlights the charts and data that matter to investors in corporate credit.

13/02/2024
Credit lens

Authors

Harry Goodacre
Strategist, Strategic Research Unit

The February edition of the Schroders Credit Lens highlights that spreads have narrowed significantly in recent months, with USD spreads now much tighter relative to their history than is the case for EUR spreads, particularly so for IG.

Links to all three versions of the Credit Lens are provided below and at the bottom of the page. 

*We also now publish a separate EUR version specifically for Insurance Company Investors.

Summary: 

Spreads have narrowed significantly in recent months, alongside growing expectations for both lower policy rates and a soft landing for economic growth.

USD spreads are much tighter relative to their history than is the case for EUR spreads, particularly so for IG. And this is the case across all sectors. Within Euro IG, Real Estate spreads continue to be elevated, although they have also narrowed in recent months.

Corporate bond yields have fallen far from their October 2023 peaks, and are now notably lower than the levels seen for most of last year. Alongside relatively lower yields, there was a strong start to 2024 for primary issuance, particularly in IG.

The credit rating migration picture is mixed. In HY, net downgrades have been outpacing upgrades over the last year but this trend appears to be fading. By contrast, ‘rising stars’ have been outpacing ‘fallen angels’, with stronger HY issuers being upgraded to IG at a faster rate than weaker IG issuers are downgraded to HY.

While US high-yield default rates have moved higher over the past year, they have so far only increased to around long-run average (median) levels. This is also the case for Euro high-yield default rates.

Overall corporate fundamentals were stable in Q3. The elevated level of interest rates continued to reduce interest coverage ratios but leverage mostly remained in recent ranges.

Chart of the month

USD IG spreads tighter relative to history

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.

Authors

Harry Goodacre
Strategist, Strategic Research Unit

Topics

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