Short Term Bond Quarterly Update – October 2022

The sharp sell-off in loans tied to First Brands Group, a US auto-parts supplier, has rippled through credit markets in recent weeks — but for investors' outstanding senior secured loans held in Collateralised Loan Obligations (CLOs), the damage appears modest and distinct from reported off balance sheet financings.

France is in the news again. Prime Minister Lecornu became the latest casualty of the French politics saga that began just over a year ago when president Macron called a surprise early election.

Tight spreads and elevated supply are often key signs that fixed income markets are overheating. Despite these all being present within the European High Yield market today, the underlying data points to a more measured backdrop characterised by the printing of high-quality new issues, improving credit fundamentals and a stubbornly supportive technical background, offering investors reassurance over the medium-term future of the asset class.

In November 2023, we estimated that holding cash, as opposed to staying invested, could cost investors 10-30% over a three-year period. At the time, we highlighted that interest rates had reached their cyclical peaks and were likely to decrease from that point.

Oracle priced an $18bn six-tranche (5yr/7yr/10yr/20yr/30yr/40yr) bond deal which was increased from an initial $15bn on the back of exceptionally strong demand. It is the latest sign that the AI investment boom, long the focus of equity markets, is now spilling into credit.

Following the end of quantitative easing in 2023, the European ABS market has gone from strength to strength and 2025 is set to overtake the post-2008 new issuance record set in 2024.