Alternative Credit Letter

Year to date, the US leveraged debt market posted strong performance, with returns of 8.3% in the leveraged loan (syndicated bank loans) segment and 8.7% in high yield bonds. In contrast to previous years, the short-term maturity profile of the leveraged loan market is heavily weighted toward lower-rated issuers (single B’s/CCC’s) compared to the high

Leveraged loans delivered one of the strongest gains of the year during October, outperforming the high yield market by 1.45%. The month was marked by heavy CLO issuance, robust primary market activity, and substantial fund and ETF inflows. A sectoral breakdown reveals that telecommunications was the only positive performer in the high yield market, whereas

U.S. homeowners’ equity has reached a historic high, with $ 35 trilion, serving as a substantial financial backstop for the economy in the event of a recession. In such a scenario, homeowners have the option to refinance their mortgages and tap into this equity as a financial cushion (vs. U.S. GDP value of $ 27

Historically, bank spreads have typically traded wider than those in the broader corporate market. However, this gap has almost disappeared, driven by the positive dynamics and performance within the banking sector since the European Central Bank started the hiking rate cycle in 2022. EUR IG Sr Financial spreads (see blue line in graph) are now

The global economy has to deal with higher structural inflation forces driven by aspects such as geopolitics (i.e. new tariffs, near-/on-shoring), energy transition, demographics or elevated fiscal spending. However, over the next 12 months, the US inflation could tame somewhat towards 2.5% as service inflation is expected to cool. This current disinflation trend is expected

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

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

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

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

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