Fixed income

The last few weeks has seen healthy issuance in the high yield space, including multiple billion pound deals, the most recent of which, Asda, priced on Wednesday. This was an interesting deal for a few reasons, not least because it is the largest sterling high yield deal of all time

This deal, backed by a £472m pool of owner-occupied mortgages partially securitised in a previous transaction, drew over £1.2bn of orders and was printed 10-30bp tighter than initial price guidance depending on the tranche, reaching pre-COVID tights.

Ultimately, the fact that the Klockner deal is not marketed as a green loan but still includes ESG-related covenants is proof that ESG needs to be integrated into an investor’s credit work as a matter of course, something we have been arguing for years.

We think it is indeed time to begin the search for recovery stories and deleveraging credits in sectors where the execution strategy is likely to succeed.

I think it’s likely we’ll see new cycle tights for the European CLO sector this year, so in addition to healthy income we believe there is plenty of room for capital appreciation as prices are being pushed higher in the secondary market.

We think this current pause in the global rally is healthy and gives investors a rare moment to reassess, but from a fixed income credit point of view we would not expect too much of a dip.