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

Authenticity in ESG integration
We explain why the delivery of Sustainable Wealth Creation has and always will be our core purpose.
Weekly Credit Insight
Dispersion in year-to-date returns across various parts of the global credit universe.
Zen and the art of investment management
Exploring mindfulness as a vehicle for truly responsible investing
Stewardship during a crisis: Lessons from the pandemic
Dr Hans-Christoph Hirt, Head of EOS, reflects on the pandemic and the stewardship lessons for companies and investors.
Pricing ESG risk in credit markets: through volatility, our conviction affirmed
Companies with better ESG practices tend to have lower CDS spreads, even after controlling for credit risks.
Credit Pulse: market update – 12 March 2021
How does the fixed-income team use different types of loans to protect investments from inflation in this current environment and why have asset-backed securities (ABS) grown more attractive as concerns over rates increase?