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Corporate Credit Update

US

Amid the backdrop of weaker equities (ESH2 -6.5 at 4462.5) investment grade credit risk has risen to the highest levels since Nov 2020 this morning -- are currently scaling back the move as stocks attempt a rebound.

  • IG corporate credit risk measured by Markit's CDX IG5 index climbed to 67.47 (+5.46), have scaled back to 64.80 (+2.40) currently.
  • High-yield index, CDXHY5, currently at 105.83 (-.66) vs. 105.58 midmorning low.
Morgan Stanley credit analysts note that while IG credit risk "an be affected by tighter liquidity conditions via mutual fund/ETF outflows and re-allocation shifts," they posit the "impact could play out with a lag versus Fed-sensitive assets."
  • Broader IG market remains supported by the large and growing presence of non-MTM yield-based investors, both domestic and overseas. This implies that while rate moves can drive short-term volatility via fund outflows, the market ultimately has significant technical support at higher yields once volatility normalizes.
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