Schroders Credit Lens June 2023: your go-to guide to global credit markets
Our monthly analysis highlights the charts and data that matter to investors in corporate credit.
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The June edition of the Schroders Credit Lens highlights corporate bond yields edged up in May, while spreads were little changed despite US debt ceiling concerns.
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:
Corporate bond yields edged up in May, with increases in USD and GBP yields driven by higher risk-free rates, reflecting expectations of tighter-for-longer monetary policy to bring inflation back to target.
Spreads were little changed on the month despite US debt ceiling concerns. 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.
US high yield issuance has picked up from very low levels, but the amount outstanding has been contracting over the last year.
Credit curves continue to be very flat, with longer maturity bonds offering little or no yield over shorter maturity bonds.
Default rates in US high-yield are rising. And more elevated distress ratios indicate that defaults could continue to increase.
Overall corporate fundamentals remained strong in Q1, but higher interest rates are starting to have an impact. Also, earnings growth and corporate margins are lower than the peak levels seen in recent years.
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.
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