Schroders Credit Lens July 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 July edition of the Schroders Credit Lens highlights how spreads have mostly stayed in narrow ranges in recent months, despite higher political uncertainty.
Links to all three versions of the Credit Lens are provided below and at the bottom of the page.
Summary:
Spreads have stayed in narrow ranges in recent months, although Euro spreads briefly widened on French political uncertainty. While French issuers account for c.20% of Euro IG and HY indices, the indices are diversified across countries. USD IG and HY spreads remain near post Global Financial Crisis (GFC) lows.
Corporate bond yields continue to be elevated, albeit are 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 HY bond default rates have edged down slightly in recent months. Default rates for HY bonds are not far off long-run median levels but are elevated for US leveraged loans.
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.
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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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