Information for investment professionals

In Credit
8 July 2024

All change.
Markets at a glanceDavid 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

Price / Yield/ Spread

Change1 weekIndex QTD
return*Index YTD
returnUS Treasury 10 year

4.30%

-10 bps

0.6%

-0.2%

German Bund 10 year

2.57%

7 bps

-0.3%

-2.4%

UK Gilt 10 year

4.13%

-4 bps

0.5%

-2.5%

Japan 10 year

1.10%

4 bps

-0.2%

-3.4%

Global Investment Grade

97 bps-5 bps0.7%

1.0%Euro Investment Grade106 bps-11 bps

0.3%

0.9%

US Investment Grade

92 bps-4 bps0.9%

0.9%

UK Investment Grade95 bps-3 bps0.5%

0.5%

Asia Investment Grade151 bps

1 bps

0.2%

2.7%

Euro High Yield

359 bps-9 bps

0.3%

3.6%

US High Yield

327 bps

9 bps

0.2%

2.8%

Asia High Yield

601 bps-1 bps

0.4%

10.2%

EM Sovereign

345 bps

1 bps

0.6%

2.4%

EM Local

6.6%-3 bps

1.0%

-2.8%

EM Corporate

274 bps

7 bps

0.3%

4.2%

Bloomberg Barclays US Munis

3.7%

0 bps

0.1%

-0.3%

Taxable Munis

5.1%-8 bps

0.6%

-0.6%

Bloomberg Barclays US MBS

46 bps-2 bps

0.7%

-0.3%

Bloomberg Commodity Index

240.78

1.6%

1.6%

6.8%

EUR

1.0839

1.2%

1.2%

-1.8%

General Fixed Income

Source: Bloomberg, Columbia Threadneedle Investments, as of 8 July 2024.

CTEA6766685.1 Issued July 2024 | Valid to end September 2024

01/04/2024

Sarah McDougall

01/01/2024

General Fixed Income

01/10/2023

Gary Smith

01/07/2023

Responsible Investments
Investment Grade Credit

01/04/2023

Charlotte Finch

161412108642001/01/2023

Asian Fixed Income

Unemployment Rate (%)

Justin Ong

01/10/2022

Chart of the week – US Unemployment rate – last five years.

01/07/2022

Structured Credit

01/04/2022

Source: Bloomberg, ICE Indices, as of 5 July 2024. *QTD denotes returns from 30/06/2024.

01/01/2022

Kris Moreton

01/10/2021

0.7%

01/07/2021

1.3%

01/04/2021

1.3%

01/01/2021

1.283701/10/2020

GBP

01/07/2020-12.3%

01/04/2020

0.1%

01/01/2020

0.1%

01/10/2019

160.8001/07/2019

JPYEmerging Markets

In Credit  08 July 2024

Macro / government bonds
It was a better week for government bond markets with yields falling in most areas.
Last week’s data highlight was the release of US employment statistics on Friday. The headline
number on non-farm payrolls was close to market expectations, but as often is the case, the‘devil was in the detail’ – namely the revisions to previous data releases. The net result was aperception of a weak report, and a rally in US treasury 10-year bonds which took the yield downby 5bps to 4.30%.
The UK election on Thursday delivered as expected a very large majority for the Labour party.
However, what was a surprise was that this was achieved with a similar number of votes forLabour as when losing the 2019 General Election. The peculiarities of the UK’s ‘first past thepost’ voting system were the explanation for this, accompanied by a fracturing of theConservative vote in favour of the Reform and Liberal Democrat parties, and the collapse insupport for the SNP in Scotland. Has the UK swung to the left? Not really. Adding votes for
Reform and the Conservatives together equals 38% of the total vote, against the 34% won byLabour.
The first round of the French elections last weekend raised the spectre of a win for the rightwing RN party. However, a flurry of political manoeuvring and construction of temporary election
alliances amongst left and centrist parties have stymied the right-wing RN. Results from thesecond round of the election on 8 July reveal the RN finished in third place, behind both a leftwing alliance and the centrist group. The bottom line, however, is that no group will have aparliamentary majority, and an unstable coalition is the likely outcome. Expect fresh
parliamentary elections to be called in June 2025.
The week ahead will be dominated by analysis of Fed Governor Powell’s appearance inWashington DC on Tuesday and Wednesday; by on-going analysis of President Biden’sintentions in terms of his candidacy; and by the US CPI release on Thursday.

Investment grade credit
After the spread widening seen in the last couple of weeks markets have rebounded pulling
valuations back closer to the year’s tights – as can be seen in ‘Markets at a glance’ spreads
and most materially in Europe. By the end of the week, Global IG spreads reached 97bps overgovernment bonds according to data from ICE Indices. This is only three basis points wide of
the recent tight spreads.
The market remains supported by ongoing investor demand and inflows. Some notable interest
was seen for property company Grand City (estimated seven time oversubsribed) and for
Deutsche Bank’s social bond (with even higher demand).
There was little specific news to focus on last week and the surprise result in the Frenchelection last weekend, which seems to rule out a majority for either of the more ‘extreme’political parties, has soothed some of the fears from a couple of weeks ago. The widely
expected landslide victory for the opposition Labour Party in the UK last week passed without
any market impact (see more above in the Macro / government bonds section).
The market’s attention will now focus on the results season which kicks off this week as anumber of major banks report earnings (e.g. DNB, JP Morgan, Citibank and Wells Fargo).

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High yield credit & leveraged loans
European high yield started Q3 with a solid +37bps increase for the week as spreads tightened
9bps while yields remained more or less unchanged at 7%.
Market decompression continued as CCCs were again the weakest performers and the only
rating band with a negative return for the week (-19bps). Outflows continued for the second
week in a row, this time from both ETFs and managed accounts. The primary market remained
busy with €2.7bn brought to the market over five issuers.
In credit rating news, SBB the Swedish real estate group was cut to selective default by S&P.
This came with the news that the group had initiated a bond exchange, swapping its bonds for
new ones but with a deep discount.
Another short seller target is in the news, with Muddy Waters questioning certain accounting
issues of Eurofins, the testing company for farmers and food. In response, Eurofins has hired
EY to conduct an accounting review. In other issuer news, Altice France’s plan of selling its
XpFibre unit is stalling. Valuations from prospective buyers are coming in at €6-$7bn, lower thanthe €8bn that Patrick Drahi was expecting. At Grifols, there was more drama with theannouncement that members of the Grifols family are in talks with Brookfield, the alternative
investment management firm, to take over the company (the family currently owns 30%).

Asian credit
The PBOC has reportedly made arrangements with major domestic financial institutions toborrow Chinese Government Bonds for the purpose of potentially short selling these CGBs tocurb the short-term rally in yields. The PBOC has expressed concern on what it views as theexcessive decline in the long-term CGB yield, which could pose downside risk to financial
stability should the market reverses. Accordingly, the PBOC is looking to set a floor for the yieldof the long-term CGBs via the short-selling arrangements.
The PBOC has also announced further open market operations as well as the tightening of theinterest rate corridor of short-term rates. Specifically, it will conduct bond repurchase or reverse
repurchase operations in the afternoon, where necessary. The repurchases will be based on the7-day reverse repurchase rate and reflects the gradual shift away from the reliance on the oneyear policy rate (Medium Term Lending Facility) as the benchmark rate.
Honhai reported its June revenue and Q2 revenue (+17% q/q +19% y/y), which were strong
despite the off-peak seasonality in Q2. The company provided a confident guidance for thesecond half of 2024 with expectations for further q/q and y/y growth in Q3. The key drivers are
the ramp-up of AI servers, the recovery in the demand for non-AI servers and new productlaunches of PCs and smartphones.

Emerging markets
A quiet week in emerging markets was in part owing to the US holiday on Thursday. Emerging
market hard currency sovereigns took some relief following Friday’s softer US data and ended
the week +0.60% with the majority of returns coming from the US treasury rally. Spreads wereunchanged at 392bps. High yield names outperformed investment grade with Africa the best
performing region.
Chile launched a €1.6bn 7-year social bond as the A2/A/A- rated country looks to diversify its
bond offerings. EM sovereigns have issued $119bn new bonds so far this year with the last
couple of weeks seeing higher activity as issuers look to issue before the summer. EMcorporates have experienced more primary market activity with $204bn YTD.
As expected, the Polish central bank held interest rates at 5.75% for the ninth consecutivemonth, as inflationary pressures continue. In Turkey, annual inflation came in lower than
expected at 71.6%, down from 75.5% the previous month. The government’s inflation target forthis year is 33%.

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Responsible investments
It was a fairly quiet first week in July for the ESG bond market, although a new issue fromDeutsche Bank did make the headlines.
A brand new social bond from Deutsche Bank came to the market last week with incredible
popularity at over 13 times oversubscribed. The bank aims to have €500bn in labelled bonds
issued by the end of 2025, and is on track to achieve this with over €200bn already in issue.
Proceeds from this new €500m issue – its first social bond issue – will fund projects outlined inits sustainability framework such as “development and provisioning of adequate and affordable
housing for disadvantaged populations or communities, or to the promotion and enhancementof access to senior housing with special care”.

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CTEA6766685.1 Issued July 2024 | Valid to end September 2024

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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 08.07.2024, unless otherwise stated.
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CTEA6766685.1 Issued July 2024 | Valid to end September 2024