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?
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.