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Schroders Credit Lens August 2025: your go-to guide to global credit markets
Credit spreads are near their most expensive for at least 20 years.
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Links to all three versions of the Credit Lens are provided below and at the bottom of the page.
- Valuations are near their most expensive for at least 20 years, especially US investment grade (IG). European and EMD spreads, which had offered relative value, tightened last month (slides 4, 25).
- The spread valuation case for European credit over US credit has played out. But EUR IG offers a 0.4% yield pickup, and EUR high yield (HY) a 0.3% yield pickup, over USD bonds on a fx-hedged basis. This should continue to support demand (slides 5-6, 14).
- Fundamentals remain supportive. Leverage and interest cover are stable, cost of debt has peaked, and profit margins are holding up (slide 7).
- EUR issuance is running hot, USD issuance is closer to historical norms (slides 8, 34).
- Tight credit spreads mean the payoff for taking credit risk is low compared with history, but spreads still offer a premium over long-term default and downgrade losses (slides 20, 32-33). The risk is more acute for tactical positions, as it would take only a small rise in spreads to leave investors underperforming government bonds.
Charts of the month
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