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

Weekly Credit Insight

Chart of the week: animal spirits

Expectations of a strong recovery in 2021 – and progress in fighting Covid-19 – mean that the fundamental outlook has improved. But while the outlooks for next year strike a positive note, it is important to think about any risks lurking under the surface. 

We will cover one of these risks every week until the end of the year. The first is the potential change in corporate behaviour amid these better conditions. This year has been a positive one for corporate behaviour: companies cut shareholder returns, the number of leveraged buyouts fell and there was little merger and acquisition (M&A) activity to impair credit profiles (see figure 1).

Figure 1. M&A activity is down

Source: Bloomberg, as at November 2020.

As news of potential Covid-19 vaccines provided a shot in the arm, global funding rates for corporates are near all-time lows. This, combined with the capital sitting on the sidelines in the private-equity universe and the likely improvement in the fundamental outlook, mean that corporate behaviour could be less optimal next year.

Nature abhors a vacuum and we expect the focus to shift from balancing default risk and the reach for yield to navigating stormier waters as corporate increasingly take advantage of favourable market conditions.

More Insights

No time like now: why investors are moving on ESG
We take a trip down memory lane and into the future with ESG...
Can palm oil ever be considered sustainable?
With monocropping one of the main causes of deforestation, palm oil production needs to change. Rather than staging a boycott, responsible investors should engage with companies across the supply chain to encourage the adoption of globally recognised certification standards
Leading the way in climate-related engagement: Federated Hermes achieves A+ score in InfluenceMap study
Federated Hermes ranks among the top five firms in a study focusing on the climate-related engagement efforts of the world’s 30 largest asset management groups.
Weekly Credit Insight
A Lift-off in rates focuses attention on security selection and an unconstrained approach
A changing climate in fixed income: 360°, Q1 2021
In a sustainability-focused edition of 360°, we explore how sustainable finance shifted from a niche corner of the market to a position of prominence.
Credit Pulse: market update - 12 February 2021
What are our views on fixed income markets for the next coming months? How does the team prepare for the different possible outcomes?