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Corporate Credit Update

US

Less negatively correlated with equities today, credit spds still wider but off early highs as stocks trade weaker on inside session range.
Stocks off midmorning highs of 4513.0, SPX eminis currently trading -15.5 at 4477.0, no obvious headline driver but banks/financial names trading weaker, Meta (formerly Facebook) extends three-day rout to nearly 30%.
Investment grade credit risk climbed to the highest levels since Nov 2020 this morning -- inching past last Friday's high.

  • IG corporate credit risk measured by Markit's CDX IG5 index climbed to 66.181 (+2.447) vs. 66.151 early Friday, currently 64.932 (+1.228).
  • High-yield index, CDXHY5, currently at 105.848 (-.223) vs. 105.533 early session low.
Risk-off: JP Morgan strategists cite "monetary policy uncertainty" and "declining amount of negative yielding debt in the world" as "negative for credit, as is the resumption of active supply and the tension in Russia/Ukraine."
  • HG spreads stabilized earlier in the week as equity markets rebounded, but weakened again at the end of the week on the ECB/BoE hawkishness and weaker earnings in the tech sector.
  • Credit positive: JPM notes "USD credit hedged for FX risk from a Euro and Yen perspective hasn’t been this cheap in 5 yrs" while "fund outflows have been modest given the YTD negative MTM and spread dispersion by sector hasn’t been this low in seven years - a sign that investors remain comfortable with credit risk even as spreads widen."
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