Most credit score markets posted optimistic positive factors within the first quarter of this 12 months, amid a backdrop of rising US Treasury yields, a stronger greenback and decrease expectations of 2024 fee cuts.
Floating-rate merchandise topped the efficiency desk, with leveraged loans and structured credit score faring significantly effectively, in accordance with evaluation from asset supervisor Ninety One.
These benefited from the rise in risk-free charges, particularly within the US.
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US and European high-yield bonds additionally carried out effectively, as credit score spreads tightened to assist offset the unfavourable affect of rising rates of interest.
“In the beginning of the 12 months markets have been pricing in round 150 foundation factors of cuts by the US Federal Reserve over the course of 2024, however higher-than-expected inflation and surprisingly sturdy jobs knowledge prompted a revision of this, and US Treasury 10-year yields rose from 3.88 per cent to 4.2 per cent over the primary quarter,” mentioned Jeff Boswell, head of different credit score at Ninety One.
“In Europe, 10-year yields additionally climbed throughout the continent, largely as a result of at present excessive correlation between US and different bond markets.”
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Nonetheless, Boswell added that credit score spreads in conventional markets akin to high-yield debt are nearing the tightest ranges seen over earlier cycles, providing “restricted potential for additional value appreciation”.
He mentioned there are different areas for credit score buyers to discover in present market circumstances, akin to structured credit score, loans and selective components of the short-duration high-yield and financial institution capital market.
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“[These] provide a sexy revenue profile and beneficial draw back traits,” he mentioned. “Whereas much less well-known, they’re effectively price contemplating at this level within the cycle.”
