Credit markets ended the month in the green, with spreads on eurozone (EUR) investment grade (IG) corporates tightened by 8 bps to 129 bps. Markets have remained fairly complacent in the face of mixed macro data and hawkish narrative from central banks, focusing on disinflationary trends and a soft landing scenario.
Sentiment was somewhat weaker in August, with spreads on EUR investment grade (IG) corporates 8 bps wider on the month to 155 bps. Rates volatility weighed on IG spreads, as the 10-year German bund yield peaked at 2.71% in mid-August and then ended the month lower at 2.47%. Inflation and central banks remain in focus – as inflation continues to slow but remains too high for central banks.
Sentiment remained strong in July, as the theme of disinflation coupled with a soft landing made a
comeback. Spreads on EUR IG corporates were c15 bps tighter on the month to 147 bps. EUR IG corporate total returns were positive on the month (1.05%) as tighter spreads were partially offset by higher rates.
Market backdrop sentiment improved in June, particularly over the first half of the month following the US debt ceiling resolution. Spreads on EUR IG corporates were circa 8 bps tighter on the month to 162 bps. Away from the US debt ceiling story, the focus remained on central banks and inflation.
Sentiment was particularly weak in March driven by fears around the banking sector in Europe and the US. Spreads on EUR investment grade (IG) widened by more than 20 bps to 170 bps after peaking at circa 200 bps during the month. Rates rallied on a combination of more dovish (at least as interpreted by the market) rhetoric from central banks as well as risk-off seen in markets.
After a very strong start to the month, fixed income markets gradually crept lower during the month as rates rose significantly in February, with EUR investment grade (IG) corporates ending the month -1.4% in terms of total return. Sentiment remained resilient nevertheless, as spreads were slightly tighter over the month – by 4 bps to 148bps.