IN FOCUS6-8 min read
Schroders Credit Lens July 2025: your go-to guide to global credit markets
European yields are attractive for foreign investors, amidst tight credit spreads
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Links to all three versions of the Credit Lens are provided below and at the bottom of the page.
- Credit spreads have tightened to historical low levels. Euro investment grade (IG) and high yield (HY) bonds offer a spread pickup over USD bonds (slides 4, 31-32)
- The value in high yield is concentrated in lower quality bonds, as higher quality credits have driven the market tighter. Dispersion has been rising, not usually a healthy sign (slide 5).
- European yields are attractive for foreign investors. IG yields are around 0.5% higher, and HY 0.8% higher, than US bonds offer (after currency hedging costs). This should support demand for EUR bonds. GBP IG bonds offer a similar yield advantage over USD ones (slides 6-7 and 15).
- Corporate bonds offer a yield pickup over cash, particularly compelling for EUR and GBP corporate bonds (slide 8)
- EUR issuance is running hot: June was the highest ever month for European HY issuance (slide 9)
- Tight credit spreads mean the payoff for taking credit risk is low compared with history, but spreads still more than cover long-term default and downgrade losses (slides 25-26, 42-43). The risk is more for tactical positions, as it would take only a small rise in spreads to leave investors underperforming government bonds.
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