Corporate Credit Snapshot June 2022 from Muzinich & Co.

Corporate Credit Snapshot June 2022 from Muzinich & Co.

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In Europe, assets were repriced due to fears of inflation and gas shortages.

  • Global credit markets had a particularly difficult month, with negative returns across all asset classes as spreads widened and the market priced in slowing growth and a possible recession
  • In the United States, economic indicators (including consumer confidence, personal spending, etc.) have been worse than expected, leading investors to speculate on when the Federal Reserve (Fed) might be stop raising rates (or even cut them) to support the economy
  • In emerging markets, looking for some return of market confidence, we look to Asia where regional growth drivers could benefit from stimulus measures in China and Japan, combined domestic spending from pent-up savings following the COVID-19 Omicron wave. Rising activity in Asia could also help unlock supply chain bottlenecks, one of the causes of excessive inflation

US

US fixed income had a particularly difficult month, with negative returns across all asset classes as spreads widened and the market priced in slowing growth and a possible recession. US markets ended the month in risk-off mode as liquidity dried up ahead of a holiday weekend and economic signals and earnings revisions pointed more clearly to a slowdown. Economic indicators (including consumer confidence, personal spending, etc.) have performed worse than expected, leading investors to speculate on when the Federal Reserve (Fed) might be forced to stop rising. rates (or even reduce them) to support the economy. Treasuries rallied at the end of the month (prices up, yields down), ending June almost where they started. It is essential that the current economic climate, which has darkened, make it possible to contain rates, which have generally been stable (except for short rates) for two months. Commodities are well off their highs and inflation expectations have fallen significantly.

Europe

European fixed income posted negative returns during the month as spreads widened and the market priced in slowing growth and a possible recession. Assets were also revalued due to fears of inflation and gas shortages. Given fears of a lack of gas from Russia in the second half of the year, investor sentiment remains mixed and the question of “what central banks can do” remains. It seems likely that the market will continue to wait until the summer. Investment grade bonds saw a slight uptick in interest during the month as rates started to fall as investors doubted the ECB could make the planned hikes. News regarding the proposed anti-fragmentation tool (AFT) to support peripheral sovereign spreads will likely be needed for the market to refocus on significantly higher rates in Europe.

ME

Emerging markets posted negative returns as credit spreads widened and economic signals and earnings revisions pointed to slowing growth and a possible global recession. In the United States, economic indicators (including consumer confidence, personal spending, etc.) have been worse than expected, prompting investors to speculate on when the Federal Reserve (Fed) might be brought in. to stop raising rates (or even lowering them) to support the economy. The prices of industrial products fell, to reach a more stable level. Oil prices peaked in March and closed lower in June from May as global authorities prioritized energy price stability at the consumer level.

Awaiting a return of market confidence, we look to Asia where regional growth drivers could benefit from stimulus measures in China and Japan, combined with domestic spending from savings. repressed following the COVID-19 Omicron wave. Preliminary data on home sales in China for the month of June rose significantly, which is a positive indicator of economic recovery. The reduction in quarantine restrictions and a ban on using national social medical insurance to fund testing suggest mass lockdowns in China are less likely in the future. Rising activity in Asia could also help unblock supply chain bottlenecks, one of the causes of excessive inflation.

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