Corporate Credit Snapshot - January 2025

January 10, 2025

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US

In the US, asset values declined across the board given a rise in Treasury yields.  Markets ended 2024 on a softer note as investors and the Federal Reserve (Fed) reduced 2025 rate cut expectations on persistent inflation.  Although both the Fed and the European Central Bank (ECB) cut policy rates in December, Chairman Jerome Powell raised concerns around the Fed’s inflation forecasts and potential signs of returning inflation. This Fed messaging weighed on US sentiment through December as the US 10-year Treasury yield rose back close to year-to-date highs and credit spreads widened after touching 10-year lows mid-month.  Primary and secondary markets were seasonally quiet as we entered the holiday period with the market lacking direction through most of the second half of the month.

EUROPE

In Europe, credit markets were mixed.  December saw European spreads rally back from the previous month’s widening, drawing investor interest on relative value as US spreads were flat in both investment grade and high yield. 

EM

Emerging Market (EM) corporates ended a strong year on a somewhat muted note, impacted by rising US government yields as investors and central banks recalibrated expectations for the incoming Trump administration.  This, combined with tight credit spreads and exhausted equity markets, led to a soft end to 2024. This month EM corporates outperformed EM sovereigns, and EM corporates outperformed US corporates (both investment grade and high yield).  Within EM high yield, we saw outperformance from Asia, while within EM investment grade the outperformer was Eastern Europe.  Latin America lagged across both sub-asset classes.  As the year ended, the primary market was also less buoyant than in recent previous months, with Asia contributing most significantly to supply. This month, Brazil’s central bank surprised with a rate hike, while Turkey’s central bank surprised with a rate cut.

OUTLOOK

Looking ahead, we expect continued strong technicals and fundamentals that could support relatively tight spread levels. We believe new issuance (gross and net) is likely to pick up, creating both potential opportunities and some volatility.  In our view, the default outlook should remain quite modest, with a low maturity wall through 2025.  The US high yield market could broadly benefit from the new administration’s focus on domestic growth and deregulation, but certain sectors and credits may be disproportionately impacted by new policies.  As such, we plan to retain the flexibility to take advantage of market and/or credit pullbacks as they occur. 

 

Past performance is not a reliable indicator of current or future performance. 

Muzinich views and opinions are for illustrative purposes only and not to be construed as investment advice.

This material is not intended to be relied upon as a forecast, research, or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed by Muzinich & Co. are as of January 2025 and may change without notice.

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