IN FOCUS6-8 min read

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.

Subscribe to our insights

Visit our preference centre, where you can choose which Schroders Insights you would like to receive.

Authors

Harry Goodacre
Strategist, Strategic Research Unit

Topics

Follow us

Please remember that the value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.

This marketing material is for professional investors or advisers only. This site is not suitable for retail clients.

Issued by Schroder Investment Management Limited, 1 London Wall Place, London EC2Y 5AU.

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

Registered No: 1893220 England. Authorised and regulated by the Financial Conduct Authority.

For your security, communications may be recorded or monitored.

On 17 September 2018 our remaining dual priced funds converted to single pricing and a list of the funds affected can be found in our Changes to Funds. To view historic dual prices from the launch date to 14 September 2018 click on Historic prices.