Schroders Credit Lens December 2023: your go-to guide to global credit markets
Our monthly analysis highlights the charts and data that matter to investors in corporate credit.
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The December edition of the Schroders Credit Lens highlights that corporate bond yields and spreads declined in November, partly reflecting a growing belief that policy rates are around their peaks. Both have done a ‘round trip’ in recent months, alongside an evolving outlook for interest rates.
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:
Corporate bond yields and spreads declined in November, partly reflecting a growing belief that policy rates are around their peaks. Both have done a ‘round trip’ in recent months, alongside an evolving outlook for interest rates
November’s rally in US IG spreads meant they reached their lowest level since the Fed started tightening, and they are much tighter relative to their history than is the case for EUR IG spreads
The credit rating migration picture is mixed. In HY, net downgrades have been outpacing upgrades over the last year but this trend appears to be fading. 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
US high-yield default rates have continued to gradually move higher, extending the trend seen over the past year. The Euro high-yield default rate has also risen from low levels in recent months. Elevated distress ratios in both markets indicate that defaults could continue to increase
US HY issuance is above the very low 2022 levels but remains subdued, with very little coming from highest risk borrowers rated CCC. This contrasts with elevated refinancing requirements in the coming years
Overall corporate fundamentals were stable in Q3. The elevated level of interest rates continued to reduce interest coverage ratios but leverage mostly remained in recent ranges
Chart of the month
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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