Research Briefing | Mar 13, 2023

Why corporate credit will underperform

Our modelling finds few scenarios in which corporate credit offers a compelling return. Stickier inflation or a sharp sell-off in stocks could lead to credit spreads blowing out again. Meanwhile, potential gains in rosier outlooks for the global economy are much more limited.

What you will learn:

  • Corporate credit has rallied strongly since year-end, albeit with the move starting from lower levels than one would expect at this point in the cycle. That said, we think the recovery in spreads is premature given potential spillover effects between the real economy and financial markets.
  • Weak global growth will lead to a deterioration in earnings and a rise in defaults while tightening credit standards is a warning sign for the corporate outlook, particularly for lower-rated issuers.
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