Corporate Credit Market Snapshot

Chair Janet Yellen continues to transparently telegraph the thinking of the Federal Reserve. We believe the Fed intends to hike at least one time this year and that future rate increases will be well paced

US:

US fixed income markets were generally flat to slightly positive this month?to?date. US high yield and loans outperformed investment grade corporates and Treasuries. US markets generally stabilized in July after the challenging macro events of the last month – particularly related to Greece – have somewhat settled. Given a weak previous month and the July 4th holiday, new issuance was limited. The new issues that came to market are not trading that well even though the market had inflows. Earnings season has begun and the few companies that have already reported (banks, basic industry) generally reported decent results. Janet Yellen’s comments in her congressional testimony were generally consistent with what she has previously said. She continues to transparently telegraph the thinking and intention of the FED. We believe the Fed intends to hike at least one time this year and that future rate increases will be well paced. We consider the recent market correction to be healthy – the market was annualizing at total return of 11% as of the end of April, the market is now annualizing at a rate of 5% as of mid July.

Europe:

European markets were broadly positive – a welcome recovery after last month’s sell?off. The first half of July was overshadowed by the Greek saga which held everyone’s attention with its many twists and turns. Against this backdrop, credit spreads widened while core rates rallied. Once Greece finally agreed to adhere to the rules of the Eurozone, rates backed off again with credit spreads still wider than they were at the beginning of the month. Due to the uncertainty and binary outcome surrounding Greece, the new issue market was almost completely closed with many deals waiting to be printed in the coming weeks. To what extent the Greek situation has dampened sentiments and growth in the Eurozone – we will find out over the next few weeks. So far it appears it had a minimal impact on 2015 growth rates.

EM:

Emerging Market (EM) corporates were positive month?to?date with high yield outperforming investment grade corporates. Defensive sectors like Telecom/Media outperformed as did Eastern Europe on the back of positive developments in Greece. Asia and Africa underperformed. African performance was skewed by Afren – a distressed oil company credit. Investors have been watching the Chinese equity market closely as it found itself in a near free fall since mid June. The Chinese government has attempted to stem the decline. It remains to be seen what impact this will have on China. In other global news – an Iran deal was announced. While the agreement must still pass through the US Congress – it is generally expected to garner enough votes. We view the agreement as generally positive for Middle East property and Turkey, but it may put increased pressure on global oil prices once Iran can begin exporting again.

Muzinich & Co.