Credit Investors Venture Back

Credit Investors Venture Back After Worst Quarter Since 2008.

The worst losses in credit markets since the global financial crisis are likely over for now, as companies that loaded up on cash grow adept at navigating faster inflation and investors who yanked money from fixed income return.

That’s the view of some of the more optimistic investors, who have taken heart from a recent rally, even if company bonds broadly dropped 7.1% in the first quarter. Bloomberg’s multi-currency corporate bond index recorded its best performance in more than 16 months last week. Risk premiums on U.S. high-grade corporate bonds have dropped 34 basis points since mid-March.

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JPMorgan Chase & Co. analysts argue the rotation away from bonds into equities is likely to let up, with less selling in the second quarter. Elisa Belgacem of Generali Investments remains overweight on credit, and Deutsche Bank AG sees investment-grade spreads declining over 12 months.

“Credit looks in a reasonable state to weather this particular storm. With strong balance sheet cash positions and record-low default rates the case appears to remain fundamentally positive” for credit in developed markets, Christian Nolting, global chief investment officer for Deutsche’s private bank, wrote. “Bouts of technical selling pressure are to be expected, though, whenever risk sentiment sours due to the conflict situation or other factors like inflation spikes” and central bank action.

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The war in Ukraine is expected to shave more than 1 percentage point off global growth this year and drive up inflation by a further 2.5 percentage points from already-high levels, according to the Organisation for Economic Co-operation and Development. Federal Reserve projections point to rate hikes through each of the remaining meetings in 2022.

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Credit Investors Venture Back After Worst Quarter Since 2008

Finbarr Flynn and Jack Pitcher

Tue, April 5, 2022, 7:11 PM

(Bloomberg) -- The worst losses in credit markets since the global financial crisis are likely over for now, as companies that loaded up on cash grow adept at navigating faster inflation and investors who yanked money from fixed income return.

https://blogs.lt.vt.edu/leahw93/2013/11/15/hero-of-the-final-frontier/

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Average euro borrowing costs for high-grade firms eased to about 130 basis points. Spreads have tightened for three straight weeks after an extended run of widening that began in mid-January.

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“Technicals should prove resilient in the near term, with flows stabilizing and high absolute yields attracting yield-sensitive investors back into the asset class,” according to Generali’s Belgacem. Still, “we expect a worsening in default rates in Europe.”

After a strong increase following the invasion of Ukraine, risk premiums on investment-grade dollar bonds have tightened for three consecutive weeks, a Bloomberg index shows.

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But with an inverted U.S. Treasury yield curve flashing warning signs, Goldman Sachs Group Inc. strategists last week recommended that investors take advantage of the tightening in credit spreads to reduce risk and shift up in quality in high-yield notes.

They argue spreads have likely reached the lower end of their range and expect investment-grade spreads will widen to 123 basis points in the fourth quarter, compared with the 111 basis points on a Bloomberg index on Monday.

The Wall Street bank isn’t alone in that view.

“I am not so super bullish for the market,” said Holger Mertens, a credit portfolio manager at Nikko Asset Management who is focusing on relative value bets to boost performance. “I wouldn’t be surprised if we see the old wides again” of 145 basis points or higher.

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Elsewhere in credit markets:

Americas

Five high-grade issuers are selling bonds in the U.S. on Tuesday.

Activity in the high-yield market is also picking up, with as many as six junk bond deals slated to price this week

In leveraged loans, MKS Instruments, a maker of equipment for the chip industry, will hold a lender call Tuesday for a cross-border loan offering to fund its acquisition of Atotech

Last week, struggling aerospace supplier Incora secured a financial lifeline from a group of investors including Silver Point Capital and Pacific Investment Management Co. that pushed rival creditors down the repayment line, aided by unusually aggressive moves from its private-equity sponsor Platinum Equity. It’s the latest creditor-on-creditor clash in the hyper-competitive world of distressed debt investing -- helping cash-strapped borrowers to call the shots even as the cheap-money era ends.

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Global sustainable debt sales snapped an upwards trajectory in the first quarter, dragged by a slump in social debt and in green loans

Apollo will provide an up to $425 million credit facility to Israeli fintech company Liquidity Capital, according to a filing

For deal updates, click here for the New Issue Monitor

For more, click here for the Credit Daybook Americas

EMEA

The European Union is heading a busy day of debt issuance in Europe’s primary market, with at least 10.95 billion euros ($12.03 billion) of deals set to price marketwide, data compiled by Bloomberg show.

The EU sold 6 billion euros of long 20Y green bonds at 9 basis points above midswaps

Among corporates, Diageo Plc is returning to Europe’s market for new bonds for the first time in about a year and a half with an offering of two euro and two sterling bonds

ESG debt pioneer Enel SpA has chalked up another ESG milestone with the largest offering of sterling sustainability-linked bonds. The Italian power firm raised 750 million pounds ($985 million) in a sale on Monday, the largest corporate sustainability-linked bond sale in the currency on record

Elsewhere in ESG, a German market is introducing a new sustainable debt structure to boost transparency and encourage more smaller companies to dip their toes into the ethical space. The so-called ESG bridge structure intends to buoy sales of Schuldschein notes with ESG criteria, building a market where such debt accounted for more than a quarter of last year’s issuance

Russia’s efforts to avoid a sovereign default took another blow after the U.S. Treasury halted dollar debt payments from the country’s accounts at U.S. banks.

Asia

The dollar-debt primary issuance market was quiet on Tuesday with public holidays in China and Hong Kong. Two issuers from elsewhere in the region mandated for potential sales.

Japan’s Orix Corp. and Freeport Indonesia mandated banks to arrange fixed-income investor calls from Tuesday, and benchmark-sized dollar bond offerings may follow

Australia’s central bank opened the door to earlier interest-rate increases by scrapping its five-month reference to remaining “patient” on policy and signaling that the timing of liftoff would depend on forthcoming data.

Sri Lankan bonds slumped after protests against soaring inflation and lengthy power cuts led to a cabinet reshuffle, adding to concern political turmoil will hamper the government’s ability to repay its debts in the face of a deepening economic crisis.

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Credit Investors Venture Back

Credit Investors Venture Back After Worst Quarter Since 2008.

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