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

Weekly Credit Insight

Chart of the week: a rise in corporate refinancing is likely

The year started well for primary-market issuers. During the first six weeks of 2020, a strong macroeconomic picture and the reach for yield pushed credit spreads to the lowest level for almost a decade and encouraged firms to tap credit markets in a bid to increase returns for shareholders.

Concerns about an escalation of the US-China trade war and the upcoming US election – and the possibility that the administration’s policies could change – also encouraged corporates to turn to credit markets early on in the year.

The eruption of the pandemic and oil-price shock ushered in an unexpected bout of volatility, liquidity concerns and fear that there would be a material decline in economic activity. In turn, this also put pressure on companies to raise debt in order to improve their liquidity profiles in the new normal of economies in lockdown and changed consumer and business behaviours.

All these factors resulted in elevated issuance in most parts of credit markets this year. While issuance for general corporate purposes should slow for the rest of the year, refinancing is likely to pick up in response to the fact that the market-implied funding rate1 has reached a new low relative to the current funding rate (see figure 1).2

Figure 1. An uptick in refinancing is likely

Source: ICE Bond Indices, as at August 2020.

For now, this is mostly visible in US investment grade, where the differential is at its highest point in almost ten years – a reflection of the convergence in US interest rates with those in the rest of the developed world and strong demand for high-quality credit.

  1. 1As measured by the average yield to worst
  2. 2As measured by the average coupon

More Insights

Fixed Income Update: 21 January 2022
Eoin Murray, Head of Investment, is joined by the senior members of the Fixed Income team to introduce the succession plan.
Fiorino: Wormhole intelligence shows investors pulled in different directions by market gravity over 2021-22
Coming to you from the future, Fiorino looks back and forward at 2021 and 2022 in an alternative take on financial markets...
SDG Engagement Equity commentary: Eagle Materials
Eagle Materials, as the largest domestic-only producer of cement, aggregates, and wallboard in North America, could support more sustainable cement manufacturing.
SDG Engagement Equity commentary: National Instruments
National Instruments, a technology company supporting evolving test and measurement needs, is well placed to bolster gender parity in Science, Technology, Engineering and Mathematics (STEM) industries.
Federated Hermes Sustainable Global Equity Fund awarded Towards Sustainability label
Federated Hermes Sustainable Global Equity Fund awarded Towards Sustainability label.
Inflation: what if they are wrong?
As our portfolio managers share their views on inflation, we ask if it's time for investors to think the unthinkable