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

Weekly Credit Insight

Chart of the week: yield-curve control will support market normalisation

Market normalisation is underway, supported by the rising probability that the Federal Reserve will carry out yield-curve control and a better-than-expected recovery in Purchasing Managers Index readings. Earlier this year, the dual shock of the oil-price crash and coronavirus crisis encouraged institutions to hoard cash and resulted in the greatest liquidity squeeze in a decade.

Markets responded in typical fashion to the decline in liquidity condition: credit curves inverted and both bonds and higher-quality credit underperformed (the latter on a beta-adjusted basis).

Since then, the primary market has reopened and even businesses exposed to the pandemic shock have been able to access funding, causing credit curves to steepen again (see figure 1). Earnings season gave investors an insight into the impact of the crisis on cash-flow generation, as well as what tools firms have to navigate the uncertainty, meaning that high-quality credit started to lead the market recovery.

Figure 1. Curves start to steepen

Source: Federated Hermes, Bloomberg, as at June 2020.

The relationship between the synthetic and cash markets has also largely normalised. Primary issuance has increased as companies hurried to take advantage of the positive climate and improve their liquidity position. This has resulted in strong flows into global credit markets as investors start to see the benefits that the asset class has to offer in the current environment.  

More Insights

SDG Engagement High Yield Credit: 2020 Annual Report
Building the foundation and hitting our stride: a promising, productive inaugural engagement year
Impact Quarterly Report, Q1 2021
In this edition of our quarterly report, we introduce our proprietary Impact Database, which we committed considerable time and resource in building over the second half of 2020.
Meeting Room Webcast: Sustainable Global Equity
Announcing the upcoming launch of our Sustainable Global Equity Strategy.
EOS publishes white paper Fixing Fast Fashion
This paper sets out how companies can move towards circular economy approaches.
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