Credit Chronicle: Q4 2023
Ninety One’s Multi-Asset Credit team reviews a robust quarter for credit markets and shares its latest scorecards for the global credit universe.
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Market summary
- All parts of the credit asset class posted positive returns over Q2, with a stronger appetite for risk driving a broad-based tightening of credit spreads. This brought first-half 2026 returns into positive territory following a volatile Q1, though dispersion remained a defining theme beneath headline figures.
- Divergent sovereign bond markets shaped regional performance: US Treasury yields rose on inflation concerns and hawkish Federal Reserve, while European yields fell as oil prices eased on optimism around a resolution to the US-Iran conflict. As a result, European assets outperformed their US counterparts across most credit asset classes, with European high-yield the standout.
- In the investment-grade market, spreads tightened in both the US and Europe, but Europe again outperformed, driven by the contrasting moves in underlying sovereign yields rather than any difference in spread performance.
- In more specialist credit markets, bank capital (AT1s) recovered strongly following the March sell-off, with spreads tightening significantly as sentiment reversed.
- Floating rate markets also performed well. Lower-rated CLO tranches led the recovery as spreads tightened materially, while higher-rated tranches lagged, though returns remained positive. Elsewhere, loans performed well, with European loans outperforming the US on greater spread compression.
Where to focus and what to avoid
- We are defensively positioned and continue to rotate away from European markets that are more heavily exposed to energy prices.
- We have limited exposure to segments most at risk of AI disruption, favouring higher quality opportunities such as insurance sector issuers and select bonds issued by BDCs, which still look appealing on a longer-term relative value basis.
- We are cautiously positioned in US investment-grade debt as issuance from hyperscalers (AI data centre providers) is tipping the supply/demand balance, although relative value in this segment is improving.
- In the high-yield market – where there is wide dispersion – we prefer specialist segments such as structured credit and bank capital over the most compressed parts of high yield (notably BB rated credit), where comparable yields are available at meaningfully better credit quality. In addition, loans continue to offer significant pickup relative to high yield, even for the same issuers.
For the full breakdown of Q2 and to see our latest scorecards for the credit universe, read the PDF below.
