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

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

05-11-2023
Telescope looking to the sky

Authors

Harry Goodacre
Strategist, Strategic Research Unit

The May edition of the Schroders Credit Lens highlights that spreads narrowed on the month but remained higher than before the market volatility in March.

Links to all three versions of the Credit Lens are provided below and at the bottom of the page. 

*We also now publish a separate EUR version specifically for Insurance Company Investors.

Summary: 

Spreads narrowed on the month but remained higher than before the market volatility in March. Corporate bond yields were little changed, continuing to hover around the levels seen since late 2022

Despite banking sector uncertainty continuing, market conditions were calmer in April. And, alongside volatility subsiding, high-yield issuance picked up slightly from very low levels.

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

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.

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The views and opinions contained herein are those of Schroders’ investment teams and/or Economics Group, and do not necessarily represent Schroder Investment Management North America Inc.’s house views. These views are subject to change. This information is intended to be for information purposes only and it is not intended as promotional material in any respect.

Authors

Harry Goodacre
Strategist, Strategic Research Unit

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