Key points from June’s credit strategy meeting- Tighter financial conditions led us to lower our short-term for the US, UK and global market to -1. We remain slightly positive at +1 in Europe as valuations appear attractive and we see the economic backdrop as more positive.
- Our long-term scores for the US and Europe are -1 due to geopolitical pressure and our negative outlook on corporate strength. In contrast, we have increased our score for the UK to neutral as its corporate strength appears more solid.
- We increased our score on High Yield to +1 due to moderating inflation fears and our core view that there will be no material default cycle due to solid economic fundamentals.
- The EM team maintained their short-term score of +1 in the face of the significant value now offered by their market on an all-in yield basis.
Market summary
- May saw falling equity and bond markets on growing fears of a US recession and signs of slowing economic activity in other developed markets.
- Inflation remains a significant drag on the US and eurozone. Yields on US Treasuries fell and the curve steepened, while European government bond yields pushed higher but led to a flatter curve as investors priced in a more aggressive rate hiking cycle.
- Spreads widened across most major credit markets. Emerging markets saw a mixed picture, with oil-exporting countries outperforming. The Turkish lira traded cheaper thanks to an unconventional approach to combatting inflation. The Russian rouble continues to outperform due to tight domestic monetary conditions.
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Key market moves: May and YTD
Source: Bloomberg Barclays, as of 31 May 2022. Past performance is not a guide to the future. Data: Bloomberg Barclays (LON:BARC) index returns are USD Hedged for Global indices, and in local currency for the others.