Magnus documents: Form ADV  | Form CRS  | Privacy Policy

Topical Research – Liquid Credit Trends

Credit Markets

Perceived credit risk of large asset managers spiked higher following collapse of SVB and Credit Suisse; credit default swaps of large banks, while higher, remain more contained relative to regional banks

The cost to insure against regional bank defaults remains elevated but has trended lower in recent months; implied CDS spreads provide real time insight into banking sector stress

Credit spreads are near or below median across most sectors; while a recession still seems probable based on LEIs & manufacturing data, HYB spreads at current levels don’t corroborate that view

Credit spreads have narrowed meaningfully over November, with high yield spreads moving back below 400bps; CCC-rated bond spreads have narrowed 59bps MTD and are now 308bps below the October peak

Zooming in: despite the recent narrowing, wider spreads layered on higher base rates are bound to create issues if they persist, particularly in lower grade credit

Muni yields and spreads have come off recent highs but are still above pre-pandemic levels

Bank stress proxies have trended higher, but remain relatively contained

ETF Trends

ETF Flows: TLT has had $5.2bn of inflows since the start of October; AGG has also seen inflows of around $2.6bn MTD

Outflows from high yield ETFs have started to put pressure on prices; however, nothing compelling in terms of yields or discounts so far

In terms of yields, some high yield portfolios are getting interesting, but not near levels that would make sense for a potential “hard landing”

CEF Trends

CEF discounts have narrowed since the end of October, but remain historically wide at -11.1%; taxable bond CEF discounts narrowed most to -5.6% and muni bonds to -11.6%

CEF discounts have narrowed since the end of October, but remain historically wide at -11.1%; taxable bond CEF discounts narrowed most to -5.6% and muni bonds to -11.6%

Given negative sentiment and recession concerns, perhaps unsurprising that largest discounts are in credit-sensitive loans and HYBs

BDC Trends

BDCs were a top performer in 2021 as credit markets responded well to policy support, but performance started to break down on liquidity withdrawal in 2022; YTD, BDCs have exhibited strong performance as the economy and markets have surprised to upside

Appendix 1: Fixed Income & Credit Returns

Share it :
Disclaimer

Magnus Financial Group LLC (“Magnus”) did not produce and bears no responsibility for any part of this report whatsoever, including but not limited to any microeconomic views, inaccuracies or any errors or omissions. Research and data used in the presentation have come from third-party sources that Magnus has not independently verified presentation and the opinions expressed are not by Magnus or its employees and are current only as of the time made and are subject to change without notice.

This report may include estimates, projections or other forward-looking statements, however, due to numerous factors, actual events may differ substantially from those presented. The graphs and tables making up this report have been based on unaudited, third-party data and performance information provided to us by one or more commercial databases. Except for the historical information contained in this report, certain matters are forward looking statements or projections that are dependent upon risks and uncertainties, including but not limited to factors and considerations such as general market volatility, global economic risk, geopolitical risk, currency risk and other country-specific factors, fiscal and monetary policy, the level of interest rates, security-specific risks, and historical market segment or sector performance relationships as they relate to the business and economic cycle.

Additionally, please be aware that past performance is not a guide to the future performance of any manager or strategy, and that the performance results and historical information provided displayed herein may have been adversely or favorably impacted by events and economic conditions that will not prevail in the future. Therefore, it should not be inferred that these results are indicative of the future performance of any strategy, index, fund, manager or group of managers. Index benchmarks contained in this report are provided so that performance can be compared with the performance of well-known and widely recognized indices. Index results assume the re-investment of all dividends and interest and do not reflect any management fees, transaction costs or expenses.

The information provided is not intended to be, and should not be construed as, investment, legal or tax advice nor should such information contained herein be construed as a recommendation or advice to purchase or sell any security, investment, or portfolio allocation. An investor should consult with their financial advisor to determine the appropriate investment strategies and investment vehicles. Investment decisions should be made based on the investor’s specific financial needs and objectives, goals, time horizon and risk tolerance. This presentation makes no implied or express recommendations concerning the way any client’s accounts should or would be handled, as appropriate investment decisions depend upon the client’s specific investment objectives.

Investment advisory services offered through Magnus; securities offered through third party custodial relationships. More information about Magnus can be found on its Form ADV at www.adviserinfo.sec.gov.

Terms of Use
This report is intended solely for the use of its recipient. There is a fee associated with the access to this report and the information and materials presented herein. Re-distribution or republication of this report and its contents are prohibited. Expert use is implied.
Definitions

Asset class performance was measured using the following benchmarks: U.S. Large Cap Stocks: S&P 500 TR Index; U.S. Small & Micro Cap: Russell 2000 TR Index; Intl Dev Large Cap Stocks: MSCI EAFE GR Index; Emerging & Frontier Market Stocks: MSCI Emerging Markets GR Index; U.S. Intermediate-Term Muni Bonds: Bloomberg Barclays 1-10 (1-12 Yr) Muni Bond TR Index; U.S. Intermediate-Term Bonds: Bloomberg Barclays U.S. Aggregate Bond TR Index; U.S. High Yield Bonds: Bloomberg Barclays U.S. Corporate High Yield TR Index; U.S. Bank Loans: S&P/LSTA U.S. Leveraged Loan Index; Intl Developed Bonds: Bloomberg Barclays Global Aggregate ex-U.S. Index; Emerging & Frontier Market Bonds: JPMorgan EMBI Global Diversified TR Index; U.S. REITs: MSCI U.S. REIT GR Index, Ex U.S. Real Estate Securities: S&P Global Ex-U.S. Property TR Index; Commodity Futures: Bloomberg Commodity TR Index; Midstream Energy: Alerian MLP TR Index; Gold: LBMA Gold Price, U.S. 60/40: 60% S&P 500 TR Index; 40% Bloomberg Barclays U.S. Aggregate Bond TR Index; Global 60/40: 60% MSCI ACWI GR Index; 40% Bloomberg Barclays Global Aggregate Bond TR Index.

Contact Us