Credit Market: Are Risks Being Repriced?
Temps de lecture : min
After a strong start to the year, the credit market is showing renewed signs of nervousness.
Since January, spreads have widened by 14 basis points in Investment Grade and by 54 basis points in High Yield. These moves remain modest, however, given the mounting risks weighing on the asset class.
Several factors are fuelling these concerns: the challenge to existing trade agreements with the United States following a recent U.S. Supreme Court ruling; rising energy prices against a backdrop of heightened geopolitical tensions in the Middle East; the accelerating disruptions linked to artificial intelligence, which are undermining certain business models; and early signs of fragility emerging in the private credit market, now a key pillar of corporate financing.
In this environment, current spread levels remain far from those observed a year ago, when the U.S. administration announced reciprocal tariff measures, and even further from the levels reached in autumn 2022, at the height of Europe’s energy crisis and amid strong inflationary pressures linked to the war in Ukraine.
Admittedly, some supportive factors remain. Economic growth continues to show resilience, and fourth‑quarter earnings confirm the strength of corporate balance sheets. These elements sustain robust investor demand, with market participants willing to accept limited risk premia in exchange for absolute yields deemed attractive, particularly in light of recent history.
Even so, caution is warranted. Geopolitical risk, in particular, still appears only weakly reflected in valuations compared with previous stress episodes. This underestimation could amplify any correction should the environment deteriorate further. The coming months may therefore mark a turning point: from a market buoyed by corporate resilience to one forced to reprice an environment that has become markedly more uncertain.
Written by
Eric LE COZ
Head of Fixed Income Mandate Management
