In focus

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


Summary:

Valuations have become unattractive in most cases but recovering economies could keep credit spreads at least stable

- After historically fast spread reversal since March 2020, credit valuations have become unattractive vs history, especially in investment grade where spreads are now at or even below the 25th historical percentile 

- As economies recover in 2021, credit rating agencies could start upgrading issuers. Periods of net ratings upgrades have historically been associated with stable or tightening spreads

- Corporate leverage has peaked in most cases. Although leverage is at all-time highs, interest coverage remains adequate in most markets. US high yield fundamentals are most challenging

- Gross issuance broke all records in 2020. Issuance should be much more muted in 2021 as companies pay down last year’s emergency borrowings

- Assuming investor demand stays strong because of the low level of risk-free yields, muted issuance and ratings upgrades should make a neutral backdrop for credit, despite the relative tightness of spreads

- The value in emerging market debt is in emerging market currencies and high yield hard currency bonds, with local currency yields and investment grade spreads back to pre-crisis levels

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

Background on the Schroders Credit Lens:

The Schroders Credit Lens is a comprehensive quarterly 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 (EMD).

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. The EMD section also covers some of the specific features of this market. For example, the split of the market between investment grade and high yield bonds for hard and corporate EMD, and the attractiveness of real yields and emerging currencies for local currency EMD.

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.

You can download all three versions of the Credit Lens below:

Banner-Credit-Lens-EUR-506560.png

Banner-Credit-Lens-GBP-506560.png

Banner-Credit-Lens-USD-506560.png

 

The views and opinions contained herein are those of the Authors, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds.

 

This document is intended to be for information purposes only. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions.

 

Past performance is not a reliable indicator of future results, prices of shares and the income from them may fall as well as rise and investors may not get back the amount originally invested.

 

Schroders has expressed its own views in this document and these may change (to be used if the 1st statement above is not being used).

 

Schroders will be a data controller in respect of your personal data. For information on how Schroders might process your personal data, please view our Privacy Policy available at www.schroders.com/en/privacy-policy or on request should you not have access to this webpage.

 

Issued by Schroder Investment Management (Europe) S.A., 5, rue Höhenhof, L-1736 Senningerberg, Luxembourg. Registered No. B 37.799. For your security, communications may be taped or monitored

 

The forecasts stated in the document are the result of statistical modelling, based on a number of assumptions. Forecasts are subject to a high level of uncertainty regarding future economic and market factors that may affect actual future performance. The forecasts are provided to you for information purposes as at today’s date. Our assumptions may change materially with changes in underlying assumptions that may occur, among other things, as economic and market conditions change. We assume no obligation to provide you with updates or changes to this data as assumptions, economic and market conditions, models or other matters change.