MAY 2023
Corporate Credit Highlights
Highlights from investment-grade, bank-loan, and high-yield asset classes.
Monthly Return (%)
4/30/23
Year-to-Date Return (%)
4/30/23
Yield
4/30/23
Option-Adjusted Spread (BPS)
4/30/23
12/31/22
12/31/21
12/31/20
Investment-Grade Corporate Bonds
0.79
4.26
0.00
126
121
87
92
Single A Bonds
0.79
4.13
0.00
116
109
74
74
BBB Bonds
0.76
4.36
0.00
166
159
115
124
1-3 Year Credit
0.51
1.85
0.00
76
61
35
30
7-10 Year Credit
0.89
4.80
0.00
153
152
93
96
Long Credit
0.87
6.33
0.00
157
157
130
141
Monthly Return (%)
4/30/23
Year-to-Date Return (%)
4/30/23
Yield
4/30/23
Option-Adjusted Spread (BPS)
4/30/23
12/31/22
12/31/21
12/31/20
Bank Loans*
0.95
4.09
0.00
599
652
439
486
BB Loans
0.75
3.02
0.00
335
363
307
305
B Loans
1.00
4.79
0.00
609
691
444
469
Loans priced over $90
0.89
3.93
0.00
453
497
417
422
Loans priced up to and including $90
1.25
4.57
0.00
1369
1419
1380
1258
Issues over $1 billion
0.86
4.10
0.00
543
596
395
414
Issues $201 million to $300 million
0.87
3.70
0.00
915
932
639
755
Monthly Return (%)
4/30/23
Year-to-Date Return (%)
4/30/23
Yield
4/30/23
Option-Adjusted Spread (BPS)
4/30/23
12/31/22
12/31/21
12/31/20
High Yield
1.00
4.60
0.00
452
469
283
360
BB Bonds
0.72
4.18
0.00
286
295
194
264
CCC Bonds
2.33
7.40
0.00
933
1008
549
658
Intermediate High-Yield Bonds
1.01
4.61
0.00
453
471
285
363
Long High-Yield Bonds
0.62
4.31
0.00
409
401
252
329
Very Liquid High-Yield Bonds
0.99
5.19
0.00
493
520
309
340
Source: Bloomberg, Credit Suisse and Morningstar® as of 4/30/23.
Investment-grade corporate bonds are represented by the Bloomberg US Credit Index and index components. Bank loans are represented by the Credit Suisse Leveraged Loan Index and index components. High yield is represented by the Bloomberg US Corporate High Yield Index and index components. An option-adjusted spread (OAS) is the measurement of the spread of a fixed-income security rate and the risk-free rate of return.
*3-year discount margin show for bank loans.
HIGHLIGHTS
Investment Grade
- Deutsche Bank on May seasonals for IG: “Over the last 23 years, spreads have tightened in May 13 times and widened 10 times. On average, spreads have tightened by 4bp in the month of May.”1
- JP Morgan: "Looking forward the low level of implied volatility in markets is puzzling, as there are several important uncertain events ahead that markets are aware of. These include the Fed meeting next week and the debt ceiling where the deadline may be within the next two months. After a record 1Q for HG trading volumes with an average of $31.4bn trading per day, volumes have fallen by 22% in April with just $24.6bn trading per day. Within broader HG credit markets technical pressure has increased in both the mortgage and municipal bond markets recently, while in HG corporates technicals remain more resilient with a second month in a row of very light supply versus steady inflows to the asset class.”2
- BNP Strategy thoughts on US IG market: “Single-A Non-Cyclicals provide attractive carry – with current spreads trading wide versus long-term averages. We expect decompression in the BBB-A basis, and for Non-Cyclical fundamentals to be more durable in a downturn. Although a pickup in supply should weigh on Non-Fin IG spreads during May, we expect strong long-end demand from LDI buyers to provide an offset. We also believe long-end IG spreads are less exposed to curve risks: a bull steepening of the Treasury curve (challenge to 1-3Y IG), and volatility in foreign demand (challenge to 5-10Y IG).”3
High-Yield Corporates
- Goldman Sachs Strategy on dispersion within HY market: “In the USD HY market, the flavor of dispersion is different. Aside from a couple of outliers within the Industrial Goods & Services sector, the main drivers of dispersion from a sector perspective have been in the Media, Retail, Telecommunications, Technology, and Health Care sectors. What do all these sectors have in common? They are all sectors we flagged earlier this year as having heightened default risks over the course 2023. Put differently, the main driver of dispersion in the USD IG market has been credit providers, i.e., Banks, while the main drivers of dispersion in the USD HY market have been those sectors where the tightening in credit conditions is likely to have the largest impact, i.e., the weakest balance sheet firms.”4
- JP Morgan strategy HY default rate update for April: “Including distressed exchanges, the par-weighted US high-yield bond default rate increased 27bp m/m to 2.18% compared to a long-term average of 3.2%.”5
- JP Morgan strategy on HY performance during a Fed pause historically: “Note there are 5 examples in the last 30yrs where Fed policy transitioned to a pause, which notably lasted an average of 10 months until the onset of the first rate cut. Note the 5 examples applied include Dec-18, Jun-06, May-00, Mar-97, and Feb-95…HY bonds provided an average 6 and 12-month forward total return of +6.4% and +12.3%. Note 4 of 5 examples were accompanied by double digit returns yoy, incl. a 14.1% gain following Dec-18’s pause, with the lone exception a mild 3.3% gain following the May-00 pause…Interestingly, BBs historically performed best following a pause (+13.7% 12M forward bonds) vs Bs (+12.3% bonds) and CCCs (+9.3% bonds). We see two key factors as contributing to the solid performance of leveraged credit: first, the fundamentals following a policy pause are not weak enough to elicit a rate cut, and secondly, rates were a tailwind for performance with 5yr UST yields declining an average 79bp and 101bp over the next 6 and 12 months, respectively. As such, HY spreads tightened a more modest 26bp on average over the 12 months following a pause. Our expectations for performance over the next year are tempered by leveraged credits’ record high exposure to elevated rates, as well as the rate rally which already transpired over the past month.”6
Bank Loans
- JP Morgan on loan AUM base: “AUM for the loan fund base is now $93.7bn, down from $142.4bn in May-22, an all-time high of $154.0bn in Oct-18, albeit well above the $68.8bn figure in Dec-20.”7
- Bloomberg comment on loan primary last month: “There were more than $27 billion of announced deals in April which compared to$8 billion launched by the end of March, according to Bloomberg-compiled data. The majority of deals were refinancing transactions, though bankers also brought acquisition-related and dividend deals, a sign of solid investor demand.”8
- Citi on loan trading flows: “Trading focus has migrated to the micro. Individual credit selection is front of mind, especially as we head into the deeper part of our earnings cycle and we've begun to see accounts look to reduce some exposure to mid-90s single B paper that have found solid footing in the recent rally."9
1 Deutsche Bank Strategy, May 2, 2023.
2 JPM Daily Credit Strategy & CDS/COX AM Update, May 1, 2023.
3 BNP Strategy, April 28, 2023.
4 Goldman Sachs Strategy, April 27, 2023.
5 JPM Daily Credit Strategy & CDS/COX AM Update, May 2, 2023.
6 JPM Daily Credit Strategy & CDS/COX AM Update, April 27, 2023.
7 JPM Daily Credit Strategy & CDS/COX AM Update, April 25, 2023.
8 Bloomberg, May 1, 2023.
9 Citi Strategy Team, April 20, 2023.
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