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

Weekly Credit Insight

Chart of the week: What a difference a year makes

A year ago both markets and corporates entered a period of turmoil, as both the oil shock and covid-19 crisis erupted at the same time1. Since then, with the help of central banks and governments, the corporate world has significantly recovered from the depths of the crisis.

One way to assess the expected idiosyncratic volatility for individual companies is to look at dispersion (in our case we look at the share of the market trading within +/- 100bps from the average). We can see from the chart below that all high yield markets have recovered back to pre-crisis levels.

What are the implications for investors this year? To start, it increases the importance of security selection – whether its optimising the right duration exposure by utilising the CDS market2 or making sure to maximise the total return of a security by choosing the optimal roll-down3. At the same time,  against a backdrop of rising rates and a difference in the maturity of the cycle between regions (for example, US versus Europe) it is key to be able to approach credit from a global perspective, paying particular attention to the geographical and currency exposure4.

Source: Federated Hermes, Bloomberg. Past performance is not a guide to future performance. 

  1. 1https://www.hermes-investment.com/ukw/post/fixed-income/chart-of-the-week-050520/
  2. 2https://www.hermes-investment.com/ukw/post/fixed-income/weekly-credit-insight-05-02-2021/
  3. 3https://www.hermes-investment.com/ukw/post/fixed-income/12-02-21/
  4. 4https://www.hermes-investment.com/ukw/insight/fixed-income/flexible-credit-all-weather-allocation/

More Insights

Inflation and supply chain disruption: Impact on corporate sectors
Inflation and supply chain disruptions, along with the moderating pace of the post-pandemic earnings recovery, have made us more cautious on corporate fundamentals as we enter Q3 reporting season
Japanese employment: engaging for greater equality – an update
A year has passed since we published a note exploring the long-standing issues around the under-representation of women within the Japanese labour force.
SDG Engagement High Yield Credit commentary: Intesa Sanpaolo
As Italy’s leading financial institution, the Intesa San Paolo Group (Intesa San Paolo) serves 13.5 million Italian customers through its 4,300 branches.
Lessons from the EU: Development of the UK’s green taxonomy
The UK is in a strong position to leverage the significant effort that has gone into creating the EU Taxonomy, whilst adapting the framework to suit the UK market where necessary
Global Equity ESG Fund: H1 Report, 2021
We continue to focus on the transition to a more sustainable economy, which we view as an exceptional market opportunity as awareness grows of sustainability issues and opportunities.
Direct lending: how senior is your debt?
Private credit is broadly described as non-bank lending where the debt is not issued or traded on public markets.