Credit Chronicle: Q4 2021

The latest quarterly indicator from Ninety One’s Developed Market Credit team covers developments across global credit markets and discusses the key risks investors will need to navigate in 2022.

13 Jan 2022

14 minutes

DM Credit Team

A volatile end to 2021

The fourth quarter proved to be volatile for credit markets, with reaction to news of the new COVID-19 variant and a hawkish pivot by the US Federal Reserve (Fed) – in the face of persistent inflationary pressures – both weighing on the market. Markets reacted sharply to news of the Omicron variant as governments tightened border controls and introduced various restrictions. This led to a sharp sell-off in November. Sentiment improved in December as research (led by experts in South Africa) suggested that Omicron is milder than earlier variants, and some nations began to soften their stance on restrictions, helping credit markets to recover much of the November impact.

Volatility was particularly pronounced in high-yield (HY) credit markets and the global HY market posted a negative quarterly return for the first time since Q1 2020. Lower-rated HY underperformed, but spreads overall ended Q4 largely unchanged, having rallied back from the November widening. Investment grade (IG) credit was flat overall; gains in the US contrasted with falls in Europe, where Omicron weighed heavier. IG spreads widened somewhat in both regions, but strong net inflows continued to provide a helpful counterbalance to high issuance volumes, with 2021 second only to the previous year’s record issuance levels.

Despite various headwinds – including regulatory tightening and lack of liquidity in China’s real estate sector, which intensified in Q4 – EM corporate credit was resilient in 2021. Elsewhere, loans and CLOs continued to deliver relatively stable, resilient returns through a volatile end to 2021 for risk assets; the loans market posted another strong quarter of performance, either matching (US) or outperforming (Europe) regional high-yield markets, capping off a strong year, with strong inflows also a feature in that market.

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General risks

All investments carry the risk of capital loss. The value of investments, and any income generated from them, can fall as well as rise and will be affected by changes in interest rates, currency fluctuations, general market conditions and other political, social and economic developments, as well as by specific matters relating to the assets in which the investment strategy invests. If any currency differs from the investor’s home currency, returns may increase or decrease as a result of currency fluctuations. Past performance is not a reliable indicator of future results.

Authored by

DM Credit Team

Important Information

This communication is provided for general information only should not be construed as advice.

All the information in is believed to be reliable but may be inaccurate or incomplete. The views are those of the contributor at the time of publication and do not necessary reflect those of Ninety One.

Any opinions stated are honestly held but are not guaranteed and should not be relied upon.

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