IN FOCUS6-8 min read

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

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

11/07/2023
City of London skyline

Authors

Harry Goodacre
Strategist, Strategic Research Unit

The July edition of the Schroders Credit Lens highlights that while corporate bond yields in many markets have remained within recent ranges, GBP investment-grade yields have moved closer to their autumn 2022 peak levels

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: 

Risk free rates continued to edge higher on the month, but corporate bond yields in many markets remained within recent ranges. The exception is in the GBP investment-grade market where yields moved closer to their autumn 2022 peak levels.

Spreads were flat or slightly down in June, with USD high-yield around year-to-date lows. Spreads have been unusually stable in the face of the sharp tightening in Bank lending conditions this year. Historically spreads have widened a lot in such situations

Credit curves continue to be very flat, with longer maturity bonds offering little or no yield pick-up over shorter maturity bonds.

Overall corporate fundamentals remained strong in Q1, but higher interest rates are starting to have an impact. Interest coverage ratios, whilst still elevated, have started to fall, reflecting a significant increase in interest expense.

Earnings growth and corporate margins are lower than the peak levels seen in recent years. Leverage continues to be lower than the pandemic era peaks, although the high-yield market saw a marginal uptick in Q1.

Default rates in US high-yield are rising. And more elevated distress ratios indicate that defaults could continue to increase.

US high-yield issuance has picked up from very low levels, with the secured proportion being unusually high.

 

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.

Important Information: This communication is marketing material. The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value of an investment can go down as well as up and is not guaranteed. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. Regions/ sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this material include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change. The content is issued by Schroder Investment Management Limited, 1 London Wall Place, London EC2Y 5AU. Registered No. 1893220 England. Authorised and regulated by the Financial Conduct Authority.

Authors

Harry Goodacre
Strategist, Strategic Research Unit

Topics

Follow us

To facilitate legibility, the language forms male, female and diverse (m/f/d) are not used simultaneously in this text. All references to persons apply equally to all genders.

Schroder Investment Management (Switzerland) AG (herein after called "SIMSAG") webpages are aimed exclusively at qualified investors with their registered office or residence in Switzerland. The SIMSAG webpage also contains information about collective investment schemes which are not approved for distribution to non-qualified investors in Switzerland.

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