In focus

Schroders Credit Lens Q1 2022: your go-to guide to global credit markets


The Q1 edition of the Schroders Credit Lens highlights how expensive valuations in credit are countered by strong corporate fundamentals, very low defaults and continuing ratings upgrades. 

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

Summary: 

  •  Credit indices ended 2021 on a high note as Omicron fears faded. Excess returns were positive across the board but total returns were negative in investment grade (IG) because of higher government bond yields
  • Valuations have generally become unattractive again after a short-lived improvement in November 
  • Technicals are very strong with default rates in high yield (HY) credit at record lows. Rating agencies continue upgrading issuers. Rising stars, upgrades from HY to IG, have finally picked up as well
  •  Fundamentals improved throughout 2021. Strong earnings growth facilitated deleveraging and low bond yields have allowed companies to refinance higher-yielding debt
  • Granted, there are some signs of late cycle behaviour. In HY, M&A/LBO related issuance exploded in 2021. This could start to put pressure on leverage. In IG, M&A related issuance also increased in 2021, but it is still lower than in the 2015-2018 period
  • In hard currency EM debt (EMD), Omicron fears have hit some of the most vulnerable countries hard, with spread dispersion the highest since August 2020
  • The real yield differential between EM and developed market (DM) bonds has increased to a post-financial crisis high. This implies significant value in local currency EM bonds and EM currencies

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 the Credit Lens below:

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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.