Schroders Credit Lens May 2025: your go-to guide to global credit markets
How have corporate bond valuations been impacted by tariff turmoil?
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Links to all three versions of the Credit Lens are provided below and at the bottom of the page.
Summary:
Spreads widened sharply in reaction to “Liberation Day” tariff news but later retraced much of the initial moves. Recent USD spread widening has been broad-based across sectors but HY Energy, HY Transportation, and IG Leisure have seen some of the most significant widening [Slides 4-5]
Spreads are no longer at such tight levels relative to history, having widened across all ratings since February [Slide 6]
Yields on USD HY and Euro HY also moved notably higher before falling back. Alongside the market volatility, gross issuance slowed in April, particularly in USD HY where issuance was the lowest since July 2023. Overall YTD USD gross new issuance levels are roughly similar to recent years. [Slides 6,7,57]
High-yield companies still face a premium to refinance, particularly those with CCC ratings. And the proportion of CCC debt maturing in the next two years is elevated versus history, albeit this remains a small part of the market [Slide 6]
Over the past year the USD HY default rate has fallen to a relatively low level. However, USD HY distress ratio has ticked up in recent months [Slides 55,56,60]
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. The trend in recent years of ‘Rising stars’ (upgrades to IG) outpacing ‘fallen angels’ (downgrades to HY) has faded, with the two now broadly balanced [Slides 58-59]
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