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Schroders Credit Lens April 2023: your go-to guide to global credit markets

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

13/04/2023
Credit Lens

Authors

Harry Goodacre
Strategist, Strategic Research Unit

The April edition of the Schroders Credit Lens highlights that corporate bond spreads widened on the month, but falls in risk free rates left corporate bond yields little changed.

Links to all three versions of the Credit Lens are provided below. 

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

Summary: 

After a period of narrowing, spreads widened in March back to around levels seen at the turn of the year. The increase reflected weaker risk sentiment following concerns for certain areas of the banking sector.

Corporate bond yields were little changed on the month, as higher spreads were offset by lower risk-free yields. Risk-free yields fell as banking sector uncertainty led to a flight to safety and brought into question the likelihood of further monetary policy tightening, particularly in the US

US Treasury volatility briefly reached the highest levels since the global financial crisis, and the heightened uncertainty saw high-yield issuance volumes slow

Default rates in high-yield have slowly started to rise. More elevated distress ratios indicate that defaults could continue to increase in 2023

Corporate fundamentals remained strong in Q4. However, corporate margins are now clearly falling. If costs continue to rise faster than sales, margins will remain under pressure in 2023, and earnings growth could disappoint

Interest coverage is very high, especially in IG, but is likely to deteriorate from here, as higher yields are now starting to meaningfully feed through to interest expense. Issuers with loans are seeing the most immediate impact

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

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Schroders (Bermuda) Limited is an indirect wholly-owned subsidiary of Schroders plc and is licensed to conduct Investment Business by the Bermuda Monetary Authority.

For illustrative purposes only and does not constitute a recommendation to invest in the above-mentioned security / sector / country.