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Schroders Credit Lens October 2022: your go-to guide to global credit markets

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

14/10/2022
credit-lens

Authors

Kristjan Mee
Strategist, Strategic Research Group

The October edition of the Schroders Credit Lens highlights sharp increase in yields across the credit universe, surprisingly low default rates in high yield credit, widening gap between US and European credit spreads, and resilience in corporate fundamentals.

Link to the Credit Lens is provided below and at the bottom of the page. 

Summary: 

Credit spreads widened across the board in September but did not exceed summer highs. Valuations are well above the long-term median

Rising risk-free yields and wider spreads have resulted in a jump in global credit yields. Even higher-rated corporate bonds now offer very attractive yields

European credit remains under pressure, driven by the energy crisis in the continent. The euro investment grade (IG) spread to US IG is the widest since late-2011

Default rates in high yield (HY) have remained surprisingly low. Rising distress ratios indicate that defaults could start to rise in 2023

While HY spread dispersion is elevated, it is not extremely high. This indicates that spreads of all issuers have risen to price-in a greater risk premium

Issuance is slightly lower in IG compared to 2021, but has fallen drastically in HY, aided by very limited maturities in 2022

Q2 corporate fundamentals data indicate that slowing growth has yet to leave a real imprint on corporate fundamentals. While earnings growth momentum is cooling, meagre debt growth is helping to keep leverage in check

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 are increasing the frequency with which we publish the Schroders Equity, Credit, and Emerging Market Lenses. From now on they will be available on a monthly basis

We hope you find this publication useful and welcome all feedback.

You can download the Credit Lens below:

Banner-Credit-Lens-USD-506560

Authors

Kristjan Mee
Strategist, Strategic Research Group
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