Why now for credit? | Insight Investment

We believe there are many positive features of the current credit market. While credit investing still carries risk, in our view, conditions have changed markedly for the better over the last year, despite ongoing economic uncertainty:

• Increased income opportunities and scope for capital gains – Yields and spreads have risen markedly, such that there may be real potential for generating meaningful income from the asset class for the first time in a decade or more, while also having the potential for enjoying capital gains should yields decline over time.
• More attractive entry point – Valuations have improved rapidly as credit spreads have risen and remain well above historic norms and at levels rarely experienced in more than 25 years.
• Wider spread dispersion provides greater scope to identify and capture relative valuation opportunities – Market turbulence and volatility has created a generally wider dispersion of credit spreads across the market, which may allow managers the chance to capture relative value opportunities, as perceptions of value have diverged among market participants.
• Additional credit spread more than compensates for default risk – In our view, credit spreads have risen above levels required to compensate investors for the risk of default.