Corporate credit outlook

Q3 2022 Corporate credit outlook: Quality time

Despite the pain felt by higher quality portfolios in the first half of 2022, we believe quality in credit markets will matter again in the back half of the year.

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July 12, 2022 | 15 minute read

While the adage remains that quality is king, this year, it seems fixed income and credit markets have missed that memo. Generally, higher quality portfolios have felt the most pain in 2022. Investment grade corporate bonds have lost nearly 15% year to date compared to declines of 12.4% for high yield bonds and -3.6% for senior secured loans. For much of this year, markets have held a clear preference for credit risk over duration risk as interest rates have spiked across the yield curve. Now, concerns over persistent inflation have morphed into fears around the ultimate path of economic growth. As recession chatter grows louder, the question, in our view, is when will quality begin to matter again?

This information is educational in nature and does not constitute a financial promotion, investment advice or an inducement or incitement to participate in any product, offering or investment. FS Investments is not adopting, making a recommendation for or endorsing any investment strategy or particular security. All views, opinions and positions expressed herein are that of the author and do not necessarily reflect the views, opinions or positions of FS Investments. All opinions are subject to change without notice, and you should always obtain current information and perform due diligence before participating in any investment. FS Investments does not provide legal or tax advice and the information herein should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact any investment result. FS Investments cannot guarantee that the information herein is accurate, complete, or timely. FS Investments makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information.

Any projections, forecasts and estimates contained herein are based upon certain assumptions that the author considers reasonable. Projections are necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the projections will not materialize or will vary significantly from actual results. The inclusion of projections herein should not be regarded as a representation or guarantee regarding the reliability, accuracy or completeness of the information contained herein, and neither FS Investments nor the author are under any obligation to update or keep current such information.

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Kara O’Halloran, CFA

Director, Investment Research

Robert Hoffman, CFA

Managing Director, Credit Wealth Solutions

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