IN FOCUS6-8 min read
Schroders Credit Lens October 2025: your go-to guide to global credit markets
Historically tight credit spreads, and the pocket of the market that has seen huge growth
Autheurs
Links to all three versions of the Credit Lens are provided below and at the bottom of the page.
- Credit spreads have tightened further, at or near their lowest levels for at least 20 years (slides 5, 31).
- Investment grade (IG) spreads only need to rise ~10-15 basis points over the next 12 months to wipe out the current spread and leave them underperforming government bonds (slide 6)
- EUR and GBP bonds continue to offer a relatively large yield pickup over USD bonds on a fx-hedged basis (slide 7)
- One of biggest shifts in corporate bond markets has been rise in secured bond issuance, especially in high yield (HY) (slides 8-14)
- In US HY, the proportion of the market made up by secured bonds has doubled since 2020, to 34%
- At an issuer-level, secured bonds have better credit ratings and tighter credit spreads so are cheaper borrowing (slides 10-12)
- Average improvement in rating = median improvement = 2 notches e.g. B3 to B1.
- Average spread discount on secured debt = 115 bps, median 59 bps
- As interest rates have risen, companies have been drawn to this as a way to manage debt costs lower
- But the rise in secured issuance does not automatically translate into a “safer” high yield market for investors
- it has tended to be riskier borrowers who issue secured bonds, likely because they are less able to afford higher interest costs. i.e. it is down to necessity, not choice. The average credit quality of the secured bond market is weaker than the unsecured market (slide 13)
- many secured bonds also trade on wider credit spreads than other bonds of the same credit rating (slide 14). Ratings agencies may be giving them a ratings uplift but this suggests the market may be marking them down vs peers. Concrete conclusions are not possible due to differences in sectors, maturity etc.
- Not all security is equal. E.g. there is a big difference between the security offered by companies active in traditional infrastructure sectors, and media companies which make video content.
- With spreads at exceptionally tight levels, investors need to take an active approach to identify those bonds which offer a reasonable risk-reward balance
Charts of the month
Subscribe to our Insights
Visit our preference center, where you can choose which Schroders Insights you would like to receive.
Autheurs
Topics