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Schroders Credit Lens April 2024: your go-to guide to global credit markets

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

11/04/2024
Credit lens

Authors

Harry Goodacre
Strategist, Strategic Research Unit

The April edition of the Schroders Credit Lens highlights how spreads have narrowed significantly in recent months, but the degree to which spreads are tight relative to history varies across the credit spectrum. Spreads of the weakest rated bonds remain much wider relative to their history than is the case for stronger rated bonds.

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: 

Spreads have narrowed significantly in recent months to levels last seen in early 2022, with US investment grade (IG) and high yield (HY) not far off post Global Financial Crisis (GFC) lows. Narrowing has occurred while inflation has moderated without a marked deterioration in growth.

USD spreads are tighter relative to their history than is the case for EUR spreads, particularly so for IG. Within HY the degree of tightness varies significantly with credit quality, with CCC spreads much wider relative to their history than is the case for BB/B spreads.

Corporate bond yields have been in a tight range so far this year, and are notably lower than the levels seen for most of last year. Alongside relatively lower yields, year-to-date issuance has been strong. Within USD HY, issuance has been dominated by refinancings, with maturity walls gradually being pushed out.

The credit rating migration picture is mixed. In HY, net downgrades have been outpacing upgrades over the last year. By contrast, ‘rising stars’ have been outpacing ‘fallen angels’, with stronger HY issuers being upgraded to IG at a faster rate than weaker IG issuers are downgraded to HY.

Having increased from very low levels, US HY default rates have been steady in recent months at around long-run average (median) levels. As is the case for Euro high-yield default rates.

Overall corporate fundamentals were broadly stable in Q4. In recent quarters interest coverage ratios have fallen to more typical levels on the back of higher interest expense. Leverage mostly remained in recent ranges.

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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.

Authors

Harry Goodacre
Strategist, Strategic Research Unit

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