Schroders Credit Lens August 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 August edition of the Schroders Credit Lens highlights how spreads widened sharply during recent market volatility, but are only back to around levels seen earlier this year
Links to all three versions of the Credit Lens are provided below and at the bottom of the page.
Summary:
Spreads widened sharply during recent market volatility, having been in a narrow range for most of the year. Despite the large moves, spreads are only back to around levels seen earlier this year [Slide 4]
Recent market volatility has seen IG corporate bond yields touch their YTD lows, given falling government bond yields. But overall, yields continue to be very elevated compared levels seen only a few years ago. [Slide 5]
The credit rating migration picture is mixed. In HY, net downgrades have been outpacing upgrades over the last year, although that trend has been slowing. 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 being downgraded to HY [Slides 54-55]
US HY bond default rates have edged down in recent months and are now slightly below the long-run median levels [Slide 6]
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 Interest Coverage Ratios (ICRs) have generally fallen towards more typical levels [Slides 31-49]
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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