Market Views

GLOBAL CREDIT BULLETS | Monday, 20 May 2024

US Inflation – Moderate relief
US inflation data for April provided some relief. US core inflation printed at 0.3% m/m, 3.6% y/y, in line with consensus. Core PPI printed at 2.4% y/y, slightly above consensus but sticky factors surprised on the soft side. Core PCE, the monetary policy relevant measure of inflation, will likely print at 0.2% m/m and 2.7% y/y as a result. Rates markets relieved as data failed to surprise on the upside, as they have done ytd. Monthly prints relieved but remain too high for the Federal Reserve to consider cuts soon. We disagree with markets on a September cut being in the cards. We believe cuts may start in 4Q and could potentially be delayed further.

Credit spreads – Tight business
Relief on the inflation front brought more excitement in credit markets. Broad credit has outperformed Treasury notably ytd (high yield is up 2-3% vs US treasuries down 2%), leaving spreads at tight levels. In Europe, high yield spreads are below 300bp, the tightest level since 2021. At current levels, investors hardly get remunerated for intrinsic risk in the broad market, especially as higher for longer is starting to bite on a few capital structures. Strong ytd inflows and buoyant primary markets point in the same direction. Recent price action reinforces our view that the broad credit market has limited value. At current levels, 50% of global bond markets, including the majority of IG credit, yields less than central bank cash rates, while 10% of the market pays at least 7.5% in Euros. Opportunities remain abundant, but an active and selective stance is key.

Algebris Investments’ Global Credit Team

This document is issued by Algebris (UK) Limited. The information contained herein may not be reproduced, distributed or published by any recipient for any purpose without the prior written consent of Algebris (UK) Limited.

Algebris (UK) Limited is authorised and Regulated in the UK by the Financial Conduct Authority. The information and opinions contained in this document are for background purposes only, do not purport to be full or complete and do not constitute investment advice. Under no circumstances should any part of this document be construed as an offering or solicitation of any offer of any fund managed by Algebris (UK) Limited. Any investment in the products referred to in this document should only be made on the basis of the relevant prospectus. This information does not constitute Investment Research, nor a Research Recommendation. Algebris (UK) Limited is not hereby arranging or agreeing to arrange any transaction in any investment whatsoever or otherwise undertaking any activity requiring authorisation under the Financial Services and Markets Act 2000.

No reliance may be placed for any purpose on the information and opinions contained in this document or their accuracy or completeness. No representation, warranty or undertaking, express or implied, is given as to the accuracy or completeness of the information or opinions contained in this document by any of Algebris (UK) Limited , its members, employees or affiliates and no liability is accepted by such persons for the accuracy or completeness of any such information or opinions.

The distribution of this document may be restricted in certain jurisdictions. The above information is for general guidance only, and it is the responsibility of any person or persons in possession of this document to inform themselves of, and to observe, all applicable laws and regulations of any relevant jurisdiction. This document is for private circulation to professional investors only.

© 2024 Algebris (UK) Limited. All Rights Reserved. 4th Floor, 1 St James’s Market, SW1Y 4AH.