Schroders Credit Lens December 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 December edition of the Schroders Credit Lens highlights how USD spreads have fallen to very tight levels – with USD IG spreads having touched levels last seen in the 1990s.
Links to all three versions of the Credit Lens are provided below and at the bottom of the page.
Summary:
- USD spreads have fallen to very tight levels in recent weeks. In November, USD investment-grade (IG) spreads touched levels last seen in the 1990s and USD high-yield (HY) spreads touched levels last seen in 2007. [Slide 4 and 5]
- Yields on USD HY and Euro HY remain notably lower than levels seen at the start of the year. Companies still face higher refinancing costs, although this has moderated from the highs seen in 2022/23 [Slides 6 and 7]
- Year-to-date issuance is ahead of last two years, particularly in US HY, with the maturity wall gradually being pushed out. USD HY bond default rates have edged down in recent months and are below long-run median levels [Slides 56 and 61]
- The credit rating migration picture is mixed. Within HY, weaker rated issuers (CCC) have seen downward rating migrations, whereas stronger rated issuers (BB) have seen upward. And ‘rising stars’ have been outpacing ‘fallen angels’, with stronger HY issuers being upgraded to IG at a faster rate than weaker IG issuers are being downgraded to HY [Slides 59-60]
- Overall corporate fundamentals were broadly stable in Q3, despite marginal weakening in some areas:
- Leverage has remained mostly stable in recent quarters, albeit IG has trended upwards over the past three years. IG leverage is relatively more elevated than HY when compared to their respective histories
- Interest coverage ratios (ICRs) are down significantly from peaks, with US IG coverage now relatively low, while US HY and Euro HY closer to average levels. However, the very high growth in interest expense has started to slow.
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.
You can download all three versions of the Credit Lens below:
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