The Impact of the Fed’s Corporate Credit Facilities

High-Yield and Bank Loan Outlook

Third Quarter 2020

Here are the key takeaways from our latest High-Yield and Bank Loan Outlook report:

  • With the Fed’s Secondary Market Corporate Credit Facility targeting a normalization of credit market functioning, we are monitoring metrics, including the level of credit spreads, credit curve shape, trading volume, and bid-ask spreads.
  • There is still scope for improvement in the level of credit spreads. BBB-rated spreads remain 37 basis points wider than January levels. BB-rated corporate bond spreads are 124 basis points wider than January levels, and B-rated corporate bonds are 130 basis points wider.
  • High-yield credit curves remain inverted. In the BB-rated sector, the difference between a nine- to 10-year maturity bond spread and a two- to three-year maturity bond spread is -36 basis points.
  • Rating migration has been negative and default rates have risen, reminding us that the Fed’s programs cannot repair solvency issues.
  • Our work continues to focus on opportunistically capturing value as the Fed’s programs support credit markets. As such, we are somewhat bullish.

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