Search this website. You can use fund codes to locate specific funds

Weekly Credit Insight

Chart of the week: a tale of two high-yield credit markets

US and European credit-market performance diverged significantly in July. Indeed, the European high-yield market underperformed its US counterpart to the highest degree since the European sovereign-debt crisis in 2011 (see figure 1).

Figure 1. US high-yield credit outperforms

Source: ICE Bond Indices, as at August 2020.

This is largely because US high-yield credit delivered its best month since 2011, despite the fact the country reported its weakest GDP growth since the 1940s. It is clear that the market is paying more attention to strong technicals and expectations than backwards-looking economic data.

The reach for yield in this age of unprecedented policy stimulus is more apparent in the US than in Europe. US interest rates have converged with those in Europe and Japan, prompting yields on US investment-grade credit to fall to all-time lows (about 30bps below pre-coronavirus levels). By contrast, European investment-grade yields are about 30bps wider. Investment-grade credit has also outperformed high yield, as investors move away from treasuries and other assets that offer record-low yields.

Earnings season and the summer lull mean that stronger demand in the US has been met with slower supply, resulting in a substantial technical tailwind. At a time when earnings are under significant pressure, this may be a signal that is would be beneficial for the European Central Bank to launch a US-style support programme for fallen angels.1

  1. 1Issuers downgraded to high-yield status

More Insights

Authenticity in ESG integration
We explain why the delivery of Sustainable Wealth Creation has and always will be our core purpose.
Global Equity ESG: Annual Report 2020
Combining attractive fundamentals and good or improving ESG characteristics
SDG Engagement Equity: 2020 Annual Report
What engagement progress did we achieve over the last year?
SDG Engagement Equity commentary: Alliant
Alliant is on course to transform the energy mix it uses to generate electricity.
Weekly Credit Insight
Dispersion in year-to-date returns across various parts of the global credit universe.
Zen and the art of investment management
Exploring mindfulness as a vehicle for truly responsible investing