Information for investment professionals

In Credit
23 September 2024

Deeper cut, steeper curve…
Markets at a glance
Price / Yield/ Spread

Change1 weekIndex QTD
return*Index YTD
returnUS Treasury 10 year

3.75%

10 bps5.1%

4.3%

German Bund 10 year

2.17%

2 bps

2.5%

0.4%

UK Gilt 10 year

3.91%

15 bps3.2%

0.2%

Japan 10 year

0.85%

0 bps

1.3%

-2.0%

Global Investment Grade

99 bps-6 bps4.8%

5.1%

Euro Investment Grade112 bps-6 bps2.7%

3.3%

US Investment Grade93 bps-6 bps

5.9%5.9%

UK Investment Grade98 bps-3 bps

2.6%

2.5%

Asia Investment Grade153 bps-7 bps3.9%

6.5%

Euro High Yield

358 bps-18 bps

3.2%

6.5%

US High Yield

315 bps-22 bps

5.1%

7.9%

Asia High Yield

555 bps-18 bps

2.8%

12.8%

EM Sovereign

330 bps-14 bps

6.0%

7.9%

EM Local

6.1%-3 bps8.3%

4.3%

EM Corporate

273 bps-11 bps

4.2%

8.2%

Bloomberg Barclays US Munis

3.3%-2 bps2.6%

2.2%

Taxable Munis

4.6%

4 bps

6.4%

5.2%

Bloomberg Barclays US MBS

41 bps

3 bps

5.9%

4.8%

Bloomberg Commodity Index

235.34

2.1%

-1.6%

3.4%

EUR

1.1123

0.8%

4.2%

1.1%

JPY

143.57

-2.1%

11.8%

-1.9%

Emerging Markets

GBP

1.3314

1.5%

5.3%

4.6%

Kris Moreton

Source: Bloomberg, ICE Indices, as of 20 September 2024. *QTD denotes returns from 30 June 2024.

Structured Credit

Chart of the week – US yield curve, 2019-2024

David OliphantExecutive Director,
Fixed Income

Contributors
David OliphantInvestment Grade Credit

Simon Roberts
Macro/Government Bonds

Angelina Chueh
Euro High Yield Credit
Chris Jorel
US High Yield Credit,
US Leveraged Loans
Laura Reardon

Justin Ong

10 year yield less two yearyield (bps)200

Asian Fixed Income
Charlotte Finch
Responsible Investments
Investment Grade Credit

Gary Smith
General Fixed Income

150100500-50-100-150

Sarah McDougall
General Fixed Income

Source: Bloomberg & Columbia Threadneedle Investments, as of 23 September 2024.

CTEA7043156.1 Issued September 2024 | Valid to end November 2024

In Credit  23 September 2024

Macro / government bonds
It was US interest rate week, and the US Federal Reserve did not disappoint. As was widelyexpected, the Fed reduced rates by 50bps to 4.75-5% in the first move since Q3,2023 when it
last tightened policy conditions. The FOMC voted 11:1 for the cut but stressed that the size ofthe move should not be seen as a new norm. One can presume a return to 25bps cuts in future
and the Fed indicated its forecast for a further 0.5% loosening in monetary conditions throughthe rest of this year.
The Fed ‘tweaked’ its economic forecasts – reducing inflation next year by two tenths butincreasing its expectations for unemployment by a similar amount.
In the UK there was less to celebrate as the Bank of England left rates unchanged – asexpected. Meanwhile, Government borrowing figures were pretty terrible ahead of the newLabour Government’s first budget in October.
This week began with disappointing composite PMI data from Europe, which indicated theeurozone economy is contracting. Similar data from the UK was less weak but lower thanmarket expectations denting some of the recent strength in sterling.
Longer-dated bonds ended the week with higher yields though shorter-dated notes werebetter supported. The US yield curve between the two- and 10-year points is the steepest
since 2022. The curve had been inverted from June 2022 to early this month, reaching a peakinversion of -108bps. It ended the week around +17bps (see chart of the week).

Investment grade credit
After that much anticipated but meaningful rate cut in the US (and in Europe the prior week),
investment grade credit markets enjoyed a period of strength last week. Global spreads
tightened around 6bps in the last five days of trading, ending the week at a spread of 99bps
over government bonds. Year-to-date, spreads are some 16bps or 14% tighter. Euro spreads
have been the best performer and are around 18% narrower, while the US dollar market is‘only’ 11% inside the level at the end of last year.
The market remains attractive to investors seeking income with some degree of safety as it still
offers a yield in excess of the historical average – though it is worth noting that the yield has
declined from around 5.9% in October of last year to close to 4.3% today. The long run averageis around 4% according to data from ICE indices.
There remains, however, some degree of dispersion of returns. The much unloved (last year)
real estate sector along with banks in the financials sector have outperformed this year.
Meanwhile media, healthcare and more recently autos have underperformed. Indeed, incompany specific news, Mercedes followed rival BMW with a profit warning towards the endof the week citing competition and slower demand in a reduction of margin expectations.

CTEA7043156.1 Issued September 2024 | Valid to end November 2024

In Credit  23 September 2024High yield credit & leveraged loans
US high yield bonds also continued to rally as the Fed delivered its 50bps cut, a strong risk-on
tone remained, and retail funds saw strong inflows. The ICE BofA US HY CP Constrained Index
returned 0.79% and spreads were 21bps tighter. The index yield-to-worst declined to 6.99%,
dropping below 7% for the first time since May 2022. According to Lipper, US high yield bondretail funds saw a $1.8bn inflow for the week, primarily ETF driven. Despite the 50bps US Fed
Funds cut, the average price of the Credit Suisse Leveraged Loan Index rose $0.1 over the week
to $95.7 amidst receding growth concerns, manageable fund outflows, and still-elevatedcoupons. Retail loan funds saw an eighth consecutive, albeit small, weekly outflow with a$116m withdrawal over the week.
European high yield had a strong week as spread contraction resumed with spreads narrowing
18bps to 358bps as yields fell 11bps to 6.45%. This resulted in a solid 0.54% return for theweek with CCCs once again outperforming higher-rated credits. Technicals were strong asinflows (€258m) picked up from the previous week, via both ETFs and managed accounts. The
corporate primary market was robust with €2.65bn issuance from four issuers (one anewcomer to the market) with a good mix of BB and single B rated names. There was strong
demand from the market especially for CPI Property Group, which was more than 6x
oversubscribed. This comes as the outlook for the real estate sector improves with the fall ininterest rates.
In credit rating news, Fitch upgraded Teva from BB- to BB flat, outlook positive. Most of Teva'sratings predate opioid settlement so this is definitely part of the rationale, alongside debt
reduction, shift towards innovation and the sale of the API business to be concluded in H1,25.
There was good news in the consumer sector as Coty was upgraded to BB+ by S&P. The rating
agency said that this reflected “its overall scale, diveristy of brands, and products in bothprestige and mass beauty and improved operating efficiency.” Emeria, a real estate services
company, was downgraded by Moodys & Fitch to B3 and B-, respectively. The ratings
downgrade does not come as a surprise considering the elevated leverage, which has been
ramped up for a few quarters now.
Recent announcements show that M&A business is finally on an upward swing. In thehealthcare sector, Organon announced an acquisition of Dermavant (immuno-derma productonly approved in '22), paying $1.2bn. S&P put Organon’s rating on negative as this move will
delay deleveraging. In gaming, Flutter (FLTR) announced the acquisition of Playtech's (PLTC)
Snaitech for an €2.3bn. This comes post last week’s announcement last week that Flutter isbuying 56% of NSX Group (a Brazilian business).

Asian credit
In China, the PBOC conducted two open market operations (OMO) to ensure sufficient liquidity
in the banking system. The PBOC lowered the 14-day reverse repo rate by 10bps to 1.85%, andit also used the operations to inject CNY74.5bn (c.$10.6bn) of liquidity. It conducted the 7-day
reverse repurchase operations in the amount of CNY160.1bn while keeping the 7-day rateunchanged at 1.7%. Such liquidity injections via OMO have previously taken place ahead ofextended holidays. This round of liquidity management comes ahead of the upcoming weeklong Golden Week holidays (1 – 7 October 2024). Interestingly too, the PBOC governor (PanCTEA7043156.1 Issued September 2024 | Valid to end November 2024

In Credit  23 September 2024Gongsheng) will be holding a press conference on 24 September 2024 with the heads ofNational Financial Regulatory Administration and China Securities Regulatory Commission. Thefocus will likely be on any further financial support for the economy.
In India, the long-running plea by the telecom mobile operators to Supreme Court to review
the calculation of the AGR (Adjusted Gross Revenue) dues has been dismissed. As background,
the operators had been ordered to pay the AGR dues in October 2019. The operators were
subsequently given a 10-year payment period, effective from March 2021 albeit with a 4-year
moratorium. Given that the Supreme Court has dismissed the plea for recalculation, theoperators must start paying the AGR dues from 2025 (after the 4-year moratorium) andcomplete the payment by March 2031.
With regards to ratings updates, Fitch has revised the outlook on PTT Global Chemical PCL(PTTGC) from negative to stable to reflect PTTGC’s position as a leading petrochemicalcompany in Thailand, its cost-competitive feedstock supply and product offtake agreementswith the parent company, PTT PCL. S&P has lowered the ratings outlook of PT Krakatau Posco’s
BBB- to negative (previous: stable) due to its weak operating performance through 2024 amid
sales volume decline and price pressure from steel imports in Indonesia.

Emerging markets
EM debt enjoyed the broader Fed-induced rally in risk assets last week, tightening by 14bps led
by high yield which ended 29bps tighter. The EMBIG posted a 0.56% total return, which wasbested by the EM Local index returning over 1.1% as EM fx was a clear beneficiary of the 50bps
rate cut from the Fed.
The biggest outperformer on the week was El Salvador, where President Bukele's promise of azero deficit budget saw index-level total returns over 6% as markets reprice higher odds of thecountry agreeing to terms with the IMF for a financing programme.
Most newsworthy was an agreement in principle between Sri Lanka and bondholders on theterms of its eurobond restructuring, which was announced just days before the weekend'sPresidential elections. In the event, the leftist and anti-establishment party won in the second
round. With campaign promises to renegotiate the IMF programme and extract greater debt
relief from creditors, last week's agreement is very much in doubt with bonds trading 5-6%
weaker on Monday morning.
The Fed's 50bps rate cut opens space for many EM central banks to begin or continue cutting
rates, as we saw with both Indonesia and South Africa kicking off their easing cycles with
25bps cuts last week. Counter to the global easing narrative was Brazil, which hiked rates
25bps a few hours after the FOMC on the back of overheating domestic demand, tight labour
markets, rising inflation expectations, and elevated fiscal risks. It is noteworthy that Brazilian
monetary policy settings have been about one year ahead of the Fed throughout the global
cycle post-Covid, so will be an interesting watchpoint for global macro investors.

CTEA7043156.1 Issued September 2024 | Valid to end November 2024

In Credit  23 September 2024

CTEA7043156.1 Issued September 2024 | Valid to end November 2024

In Credit  23 September 2024

Important information: For use by Professional and/or Qualified Investors only (not to be used with or passed on to retail clients). Source forall data and information is Bloomberg as at 23.09.2024, unless otherwise stated.
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CTEA7043156.1 Issued September 2024 | Valid to end November 2024