Alternative Credit Letter

Since December 2020 US long term nominal yields (US Treasury 10y) rose 60 bps, while expected inflation (US Inflation Swap 5y5y) remained flat at ~2.2% Markets incorporate a benign outlook, but inflation will pick up significantly over the next quarters based on statistical effects (y-o-y comparison) and cyclical forces (economic recovery, lower unemployment, higher commodity prices) Therefore, […]

Since September 2020, the FED’s policy allows for a period of inflation over their 2% target: “[…]the Committee will aim to achieve inflation moderately above 2 percent for some time[…]”, which is indicating that they are more concerned about the prospect of too little inflation, rather than too much. So, what temporary inflation level will

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

During the market rally in November, credit spreads have further tightened and reached almost pre-Covid levels in the investment-grade category, whereas spread levels are still wider in the high-yield market. OAS of broad US investment-grade corporate bonds are now only slightly higher (112 bps) in comparison to the start of 2020 (99 bps).  US high-yield

Year-to-date US high yield corporate rating downgrades accumulated to more than 475 – even surpassing the previous crisis in 2008. The up-/downgrade ratio (proportion of upgrades among total rating actions of Moody’s and S&P) marked a low of 0.16 in Q2 2020 and the accumulated YTD ratio reached 0.25, a similar low level as experienced