Corporate Credit Snapshot

Global Market
  • Global credit delivered mixed returns in February with spread tightening offset by interest rate pressure across the US, Europe, and Emerging Markets (EM)

  • In the US, high yield continued to deliver positive performance supported by persistent demand, low supply, and attractive yields.  Given rate pressure and a rising Treasury yield, investment grade risk assets and Treasurys posted negative returns

  • In Europe, returns followed a similar trend as spreads moved tighter and rates trended higher with the market continuing to push back expectations around rate cuts from the European Central Bank (ECB), supported by hawkish comments from various ECB members 

  • Emerging Market (EM) debt outperformed US and European credit this month.  Within Asia, policy support in China is building as fiscal initiatives have been accompanied by a large ongoing injection of liquidity.  In Latin America, there are ample signals of growth for the region ahead

 

US

 

US fixed income credit delivered mixed returns in February with spread tightening offset by interest rate pressure.  High yield continued to deliver positive performance supported by persistent demand, low supply, and attractive yields.  Given rate pressure and a rising Treasury yield, investment grade risk assets and Treasurys posted negative returns.  Confidence in the stability of growth increased this month—driven by strong inflation data and a PCE (Personal Consumption Expenditure) report that was in line with expectations—pointing to rates staying the same in March.  At the same time, prices remain at discounts to par and yield levels remain well above the longer-term averages, providing a strong return catalyst.

 

EUROPE

 

In Europe, credit markets delivered mixed returns in February.  Rates trended higher with the market continuing to push back expectations around rate cuts from the European Central Bank (ECB), supported by hawkish comments from various ECB members.  Spreads moved tighter; high yield continued to deliver positive performance supported by persistent demand, low supply, and attractive yields.  Given rate pressure and rising government bond yields, investment grade and government bonds declined.  This month, we saw limited performance dispersion across ratings and sectors with market attention firmly on macro-economic data—particularly inflation data at month-end and the timing of upcoming rate cuts.  Interest in corporate credit remains robust with yields well above longer term averages, and both good carry and reasonable value on offer.

 

EM

 

Emerging Market (EM) debt outperformed US and European credit this month.  Within EM, high yield continued to deliver positive performance supported by persistent demand, low supply, and attractive yields.  Given rate pressure and a rising US Treasury yield, investment grade EM debt and government bonds posted negative returns.  Policy support in China is building as fiscal initiatives have been accompanied by a large ongoing injection of liquidity.  In Japan, given the large gap between strong market momentum and softening economic activity, we believe the Bank of Japan’s changes in its asset purchase programs will take precedence over rate hikes at the start of policy normalization.  In Turkey, there was strong growth reported despite rate hikes as household consumption improved.  In Latin America, growth continues for the region, despite a stall in Brazil’s reported 4Q23 GDP growth.  However, amidst expectations that Mexico’s GDP growth will benefit this quarter from strong domestic demand and fiscal spending ahead of elections, and evidence of gains made across Chile’s manufacturing, mining, and retail sectors, there are ample signals of 1Q24 recovery for the region.

 

OUTLOOK

 

Looking ahead to March, we will have the Federal Reserve (Fed) and the European Central Bank meetings towards the beginning and end of the month, respectively.  The Fed has clearly stated that their concern about bringing inflation down to their target still trumps their worries about staying restrictive for too long and slowing economic growth.  We are hearing that the primary market in the US should slow after several large M&A transactions were funded in February, whereas activity in the European primary markets is likely to pick-up.  We continue to see strong demand for credit from various corners of the market—investors coming out of cash and money-market funds as the fear of rate hikes fades, pension funds whose funding positions have improved and are consequently rotating from equities into credit, and insurance companies looking to lock in historically attractive yields. We therefore anticipate spreads to be supported at current levels driven by continued inflows, with ongoing tightening in higher-yielding parts of the market.

 

Past performance is not a reliable indicator of current or future performance. 

 

Muzinich views and opinions are for illustrative purposes only and not to be construed as investment advice.

 

This material is not intended to be relied upon as a forecast, research, or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed by Muzinich & Co. are as of February 2024 and may change without notice.

Important Information

 

Muzinich and/or Muzinich & Co. referenced herein is defined as Muzinich & Co., Inc. and its affiliates. Muzinich views and opinions. This material has been produced for information purposes only and as such the views contained herein are not to be taken as investment advice. Opinions are as of date of publication and are subject to change without reference or notification to you. Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy. The value of investments and the income from them may fall as well as rise and is not guaranteed and investors may not get back the full amount invested. Rates of exchange may cause the value of investments to rise or fall. Emerging Markets may be more risky than more developed markets for a variety of reasons, including but not limited to, increased political, social and economic instability; heightened pricing volatility and reduced market liquidity.

Any research in this document has been obtained and may have been acted on by Muzinich for its own purpose. The results of such research are being made available for information purposes and no assurances are made as to their accuracy. Opinions and statements of financial market trends that are based on market conditions constitute our judgment and this judgment may prove to be wrong. The views and opinions expressed should not be construed as an offer to buy or sell or invitation to engage in any investment activity, they are for information purposes only.

This discussion material contains forward-looking statements, which give current expectations of a fund’s future activities and future performance. Any or all forward-looking statements in this material may turn out to be incorrect. They can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. Although the assumptions underlying the forward-looking statements contained herein are believed to be reasonable, any of the assumptions could be inaccurate and, therefore, there can be no assurances that the forward-looking statements included in this discussion material will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation that the objectives and plans discussed herein will be achieved. Further, no person undertakes any obligation to revise such forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

United States: This material is for Institutional Investor use only – not for retail distribution. Muzinich & Co., Inc. is a registered investment adviser with the Securities and Exchange Commission (SEC). Muzinich & Co., Inc.’s being a Registered Investment Adviser with the SEC in no way shall imply a certain level of skill or training or any authorization or approval by the SEC.

Issued in the European Union by Muzinich & Co. (Ireland) Limited, which is authorized and regulated by the Central Bank of Ireland. Registered in Ireland, Company Registration No. 307511. Registered address: 32 Molesworth Street, Dublin 2, D02 Y512, Ireland. Issued in Switzerland by Muzinich & Co. (Switzerland) AG. Registered in Switzerland No. CHE-389.422.108. Registered address: Tödistrasse 5, 8002 Zurich, Switzerland. Issued in Singapore and Hong Kong by Muzinich & Co. (Singapore) Pte. Limited, which is licensed and regulated by the Monetary Authority of Singapore. Registered in Singapore No. 201624477K. Registered address: 6 Battery Road, #26-05, Singapore, 049909. Issued in all other jurisdictions (excluding the U.S.) by Muzinich & Co. Limited. which is authorized and regulated by the Financial Conduct Authority. Registered in England and Wales No. 3852444. Registered address: 8 Hanover Street, London W1S 1YQ, United Kingdom. 2024-02-07-12854

Leave a Reply

Your email address will not be published. Required fields are marked *

Disclaimer: Professional Investors Only

 

This website is intended exclusively for professional investors as defined under applicable laws and regulations. It is not designed for retail investors or members of the general public.

 

By accessing this site, you acknowledge and agree to the following terms:

 

The content provided is strictly for informational purposes and does not constitute financial, investment, legal, or tax advice.


Any investment decisions based on the information contained herein are made at your own discretion and risk.

 

The operators of this website are not responsible for any losses or damages resulting from reliance on the provided information.


If you do not qualify as a professional investor, please refrain from accessing this website and exit immediately.