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

Weekly Credit Insight

Chart of the week: healthy flows into high-yield credit

As markets normalise, valuations are supporting a higher allocation to high-yield credit. This is in part due to increased savings and the involvement of central banks in fixed-income markets, which has boosted flows into spread products. Within high yield, strong valuations and fundamentals mean that the BB-rated segment looks the most attractive from a top-down perspective (see figure 1).

Figure 1. BB-rated credit looks appealing

Source: ICE Bond Indices, Federated Hermes, as at July 2020.

Earnings season should also pick up steam this week, as investors anticipate more information on full-year earnings expectations and how business models can adapt to the post-coronavirus world.

Like last quarter, we are likely to see increased dispersion as higher-rated companies are better able to preserve cash by cost cutting and reducing shareholder distributions. While there should be a small uptick in downgrades in response to weaker earnings, the magnitude of downgrades recorded year-to-date mean the volume should be underwhelming. 

More Insights

Sharpe Thinking
The clock is ticking on consumer confidence, which has been tided over by stimulus and coronavirus-related hardship payments.
The Goldilocks crisis: why we must use Covid-19 to wake-up to climate change
The coronavirus crisis may well be the wake-up call the world needs to avert the worst climate change bear scenarios.
Weekly Credit Insight
While issuance for general corporate purposes should slow for the rest of the year, refinancing is likely to pick up.
Webinar: structured credit in a low-rate environment
Andrew Jackson, Head of Fixed Income, is joined by his colleagues in the Credit team to discuss the impact of the crisis on structured credit and the value the asset class can add to a flexible-credit portfolio.
Credit: Industry Insights
Audra Delport, CFA, Deputy Head of Credit Research, discusses the most surprising developments from the Q2 energy earnings season so far.
The end of LIBOR: implications for investors
What will replace LIBOR and other IBORs, and what does this mean for investors?