Credit is getting attractive
Becoming very attractive
The recent widening means current levels are starting to look attractive according to the cross-asset team at Soc Gen. Spread to benchmarks and ASW spreads are at the widest levels in over eight months and credit yields are now at the highest levels in 20 months.
Soc Gen: "If the conflict is set to be short lived, these levels are becoming very attractive."
Source: Soc Gen Cross-Asset
Around median
iBoxx Corporates ASW spread is now around the median since late 2013, much wider than the levels we saw back in 2018 and even 2021.
Source: SG cross-asset
Even more attractive
Looking at the yields on offer, the picture is even more attractive. The yield on the iBoxx Corporates index is currently around 3.76%, the highest level since July 2024, while the yield on the HY index is at 6.07%, the highest since August 2024. The yield is now well above one standard deviation above the mean since late 2013 (chart).
Source: SG cross-asset
Inflows
Inflow remains healthy for IG but has deteriorated for HY.
Reid Zhou, GS FICC: "...we have started to see divergence between ratings, where IG continues to see strong inflow while outflow re-occurs for HY. This is not the first time we have seen outflows for HY, but the level of discrepancy between IG and HY is at the highest since SVB."
Source: Marquee
CDX IG Vol selling
GS credit team recommends selling CDX IG volatility. Preferred trade: IG45 Jun 57.5 straddles ref 57.125 26d 48.25. Caution: max loss: unlimited.
