Credit set for worst year since 2008 as crashes roil market
Credit markets are set for the worst year since the global financial crisis as investors abandon hope of a late-2018 rally.
High-yield and investment-grade notes are headed for losses in both euros and dollars, the first time all four asset classes have posted negative total returns since 2008, based on Bloomberg Barclays indexes. It’s been an exceptionally volatile month, with headlines on companies including CMC di Ravenna SC and Nyrstar NV triggering the biggest weekly jump in euro highyield spreads in almost seven years, while dollar investment-grade spreads are at a two-year high amid a sell-off triggered by General Electric Co.’s woes.
“Most people have buried hopes for a year-end rally,” Marco Stoeckle, head of corporate credit strategy at Commerzbank AG, said in a telephone interview. “This whole defensive mindset is rather entrenched.”
November’s string of blow-ups, also including the arrest of Renault-Nissan head Carlos Ghosn and a slump in Vallourec SA notes, has unnerved credit markets that are also adjusting to higher U.S. borrowing costs and the looming end of European Central Bank stimulus measures. Investors are switching focus toward avoiding losses rather than chasing yields, with high-grade fund managers paying greater attention to individual companies’ financial health rather than riskier notes that helped boost returns last year.
The credit rout, which extends to sterling notes and high-coupon contingent-capital bank bonds, has particularly hit dollar investors as they have suffered wider spreads and higher Treasury yields. U.S. investment-grade bonds have posted negative total returns of 3.71 per cent in 2018, compared to a 2.9-per-cent loss in sterling and 1.2 per cent in euro, according to Bloomberg Barclays indexes.