Fear is rising in the credit markets, as concerns about slowing economic growth and rising inflation lift risk measures to levels not seen since the coronavirus pandemic first rattled markets.
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In North America, a key measure of corporate credit risk rose to the highest level in two years.
A report on Thursday found that investors withdrew the most money from investment-grade bond funds. investment from the United States since the beginning of the pandemic. And even leveraged loans, which have been relatively strong for much of this year because they pay more interest when interest rates rise, are experiencing their worst bear run in months.
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Meanwhile, a risk gauge on Europe’s safest companies topped 95 basis points, after rising for the fifth week in a row on Friday, and is heading toward 100 basis points for the first time in more than two years.
In the middle of all this, the war in Ukraine, which is already three months away, and the blockades due to covid-19 in China will damage international economic growth and at the same time stoke inflationary pressures.
A potential stagflation environment it is particularly painful for credit investors, because accelerating consumer price pressures reduce returns, while any economic downturn increases default risks for weaker borrowers.
BLOOMBERG
