Schroders Credit Lens Q3 2022: your go-to guide to global credit markets
Our quarterly analysis of global credit markets shows that value is emerging.
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The Q2 edition of the Schroders Credit Lens highlights emerging value in credit markets, widening gap between US and European credit spreads, and a sharp drop in new issuance in 2022.
Links to all three versions of the Credit Lens are provided below and at the bottom of the page.
For a comprehensive emerging market debt (EMD) presentation, please see Schroders Emerging Markets Lens.
Summary:
After recent sharp widening of credit spreads, value has clearly become attractive, although spreads probably do not yet price in worst-case scenarios
European credit has become under pressure, driven by the quickly darkening economic outlook. Euro investment grade (IG) spread is the widest to US IG since the European debt crisis in 2011
Default rates in high yield (HY) have started to increase from record low levels. Significant increase in distress ratios, especially in Euro HY, highlight that there could be more defaults to come
Issuance is slightly lower in IG compared to 2021, but has fallen drastically in HY. Sluggish primary markets might introduce rollover risk for some issuers
The improvement in corporate fundamentals has come to an end for now. In IG, fundamentals are solid. However, there is some indication of “Covid scars” in HY. A significant economic slowdown would weigh on earnings outlook
US credit’s appeal is disappearing for hedged euro investors, while euro credit’s appeal is rising for hedged USD investors because of aggressive US rate hikes
Background on the Schroders Credit Lens:
The Schroders Credit Lens is a comprehensive quarterly 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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