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Alpinum Investment Management’s Alternative Credit Letter offers our experts’ latest assessments on the global credit markets, as well as fiscal and monetary policy developments.
Alpinum Investment Management is an asset manager of collective investment schemes authorized by the Swiss Financial Market Supervisory Authority (FINMA). The funds managed and promoted by Alpinum Investment Management including the sophisticated absolute return model portfolio strategies are eligible for distribution to qualified investors in Switzerland.
Our investment funds are domiciled in Luxembourg, Liechtenstein and Switzerland.
With the arrival of the pandemic crisis, the FED had cut rates
aggressively close to zero. In addition, it had announced an adaption of
its interest rate policy towards an “average inflation targeting” and that it will keep short term rates low for a multi-year period.
Since late 2020, the long end of the USD OIS swap curve has started to
steepen, but no Fed Funds rate hike is priced in before 2023 as the graph does well demonstrate (doted green line for expectations).
Chart 2) below illustrates the curve steepening in the US rate market (vs. 6 months ago), whereas the EUR curve did not move and is anticipating lower inflation expectations compared to the US economy.
US High Yield corporates are delivering solid results following a first quarter of earnings beats and generally positive guidance. Although leverage ratios have seen a minor increase of 0.05x in 2024, leverage ratios remain well below the long-term average of 4.31x, currently standing at 3.98x. This ratio has been stable below 4x since the second […]
US High Yield maintains stable credit metrics Read More »
The remaining maturities for high yield bonds and leveraged loans for 2024 account for only around 1% of the total market. The significant volume of bond refinancings in 2024 and 2023 after a year of record lows in 2022 has led to this accelerated debt absorption. The USD 30 billion of outstanding bonds and loans
High Yield maturity wall for 2024 & 2025 largely cleared Read More »
The syndicated loan market shows better credit metrics as compared to 2022 when interest rates started to spike. In the interim, some of the weakest companies suffered a default or went through a restructuring, but most companies were able to adapt to the new challenging economic market environment. On the one hand, leverage metrics, measured
Leverage in syndicated loans had peaked in 2022 Read More »
In the past two years, net issuance of high-yield bonds has declined significantly. A sharp rise in the cost of capital coupled with a phase of enormously increased new issues in 2020 and 2021 led to a slump in the size of the European high-yield market. In addition, there are a considerable number of issuers
Shrinking new issues underpins European HY market Read More »
There is significant dispersion in the European High Yield market indicating an increasing divergence between BB/B and CCC rated credits. Unlike in the European market, this divergence did not occur in the same magnitude in the US. European dispersion is mainly driven by concrete events in large issuers and idiosyncratic names mainly related to the
CCC bonds ask for high caution, but offer also opportunity Read More »
The performance of local emerging market debt portfolios has historically been relatively closely negatively correlated with changes in the US 10-year treasury yield. For example, the drop in US 10-year yield during 2020 COVID pandemic preceded rally in local EM debt. Subsequently, rise in US inflation and interest rates in 2022 triggered a selloff across
Local EM returns in context with 10-year US treasury yield Read More »
Following the rally on credit markets during Q4 2023, more than a third of US High Yield keeps trading at credit spreads below 200bps over risk-free rates. On a risk-adjusted basis, such spreads remain tight from a historical perspective, especially when a challenging macroeconomic outlook is considered. While overall a yield of 8% on US
Over a third of US HY keeps tight spreads after Q4’23 rally Read More »
Current market yields continue providing an attractive entry point across sectors in context with their historic downside risk, calculated as standard deviation of negative monthly returns over the last 10 years. This includes particularly adverse events, such as March 2020 market selloff (COVID pandemic start) and broad market repricing during one of the steepest rate
Yields remain attractive in context with downside risk Read More »
Historically, the income and total returns on European broadly syndicated loans have been comfortably exceeding realized default losses. This trend is evident from the chart with incomes, comprising of interest and fees, exceeding 4% and realized losses well below 1%. Total returns with mark-to-market component have also remained strong with the exception of 2022 market
Income on European loans in context with default losses Read More »
The yield breakevens, calculated as yield divided by duration, indicate by how much can yields rise, or credit spreads widen, before incurring capital loss equal to annual yield accrued on investors’ holding. A ratio of 1.0 implies that 1%point increase in yield or spread eliminates the entire year’s worth of yield accrual. As evidenced on
Record-high yield breakevens protecting return accruals Read More »
