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

Weekly Credit Insight

Chart of the week: hybrid is the new black

Last August we covered how the necessity to balance the heightened default risk environment and the lack of yields in the safer parts of the fixed income universe will drive investors into the corporate hybrid market. The issuance of this type of instrument has benefits for both the issuer and the investor.

The interest from the issuer side to issue corporate hybrids picked up in 2020 as fundamental conditions deteriorated and companies were looking for ways to raise additional liquidity in a way that manages the damage to the credit rating. For investors it is part of the reach for spread phenomenon, where it makes more sense to take the subordination risk within a corporate that is better positioned for the unprecedented environment, than to reach for additional returns in weaker corporates. As a result, the issuance of the corporates hybrids reached the all-time highs last year of €43 billion (see figure 1).

This trend is likely to continue in 2021 as it will remain key for issuers to optimise the capital structure and respond to the macroeconomic uncertainty, while the issue of lack of yield in the fixed income market is unlikely to go away any time soon.

Moreover, hybrids could be an instrument of choice for corporates looking to fund the pick-up in M&A that is bound to happen as the outlook clears up a little bit.

Figure 1. Issuance of corporate hybrids reached a record high of €43bn

Source: Bloomberg, Federated Hermes, as at January 2021. Past performance is not a guide to future performance. 

More Insights

The future of the office: An ESG issue too
Flexible working can enhance employee satisfaction, productivity and the long-term value of companies.
Car makers under scrutiny in EOS’s Q1 Public Engagement Report
Why car makers need to accelerate their transition to electric vehicles
Five key themes in energy credit
Here we present our reflections on investing in energy credit so far this year.
Doomsday at the bank: a spoonful of measures helps the resolution go down
The global financial crisis proved bank failure was not just ancient history or fictional fodder.
Credit Pulse: market update – 23 April 2021
Anna Karim, Investment Director, Fixed Income, and colleagues from the fixed income team present a deep dive into credit fundamentals in this month’s Credit Pulse.
Macro Outlook Webcast: Economic Recovery - as strong as an ox?
With things turning brighter - for more reasons than one this spring - Eoin and Neil discuss how strong economic recovery will be, whether further stimulus is required, what could go wrong, and where now for policy and markets.