At the macro level, the quarter began on a positive note, with a less hawkish tone from the US Federal Reserve (Fed) stoking hopes of an imminent end to the rate-hiking cycle. However, a more volatile backdrop subsequently ensued.
Stubborn inflation and surprisingly resilient economic data (plus an increase in the Fed’s ‘dot plot’ rate forecasts) caused markets to price in a ‘higher for longer’ interest-rate outlook. This drove up the yield on 10-year US Treasuries, and the bond market sell-off extended beyond the US.
Global credit markets were largely at the mercy of these large moves in sovereign yields, especially the higher duration assets such as investment-grade (IG). US IG yields reached a level only seen a few times over the past 20 years.
In contrast, high-yield debt proved resilient in the face of higher rates and the weakness in equities, with Europe outperforming the US, as markets priced in a more resilient economic outlook than previously feared. CCC rated bonds were the standout performers in both regions.
Robust performance continued in loan markets, helped by floating rate coupons, taking year-to-date returns into double digits across both Europe and the US.
For the full breakdown of Q3 and to see our latest scorecards for the credit universe, read the PDF below.
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