Schroders Credit Lens June 2024: 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 June edition of the Schroders Credit Lens highlights how, relative to their history, USD spreads are much tighter than Euro, and this is the case across ratings. And that USD IG spread dispersion is lowest since pre-GFC.
Links to all three versions of the Credit Lens are provided below and at the bottom of the page.
Summary:
Spreads have mostly edged tighter in recent months, with US IG and HY not far off post Global Financial Crisis (GFC) lows. Relative to their history, USD spreads are much tighter than Euro, and this is the case across ratings. USD IG spread dispersion is lowest since pre-GFC, while USD HY dispersion is around average.
Corporate bond yields continue to be elevated, albeit lower than the peaks seen last year. Alongside relatively lower yields, year-to-date gross issuance has been strong, particularly for USD HY. 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.
US leveraged loan default rates are elevated, having diverged from HY bonds which have been around long-run average (median) levels in recent months. Euro high-yield default rates are around similar levels to US high-yield.
Overall corporate fundamentals remained healthy in Q1, despite marginal weakening in some areas. Leverage has been mostly stable in recent quarters, albeit with a slight upwards trend in IG over the past couple of years. In recent quarters median ICRs have fallen towards more typical levels.
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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