Muzinich: Corporate credit grinds higher amid seasonal “lull”
Corporate credit continued to “grind higher”, with high yield outperforming investment grade amid rising oil prices and softer US inflation data, according to Muzinich & Co’s latest weekly market comment.
Warren Hyland, portfolio manager at corporate credit manager Muzinich & Co, observed that it was “a quiet week for financial markets”, adding that it was “typical of the seasonal August lull”.
Read more: Muzinich launches European CLO ETF
While oil prices moved higher, as the “geopolitical impasse” in the Middle East continued, there was little impact on broader financial markets, Muzinich reported.
Hyland noted that US inflation data “came in soft, suggesting little inflationary follow-through from the macro backdrop”.
Consumer price inflation in July dropped to 3.4 per cent year-over-year, rising by 0.07 per cent over the month, while core consumer prices fell to 1.6 per cent on a three-month annualised basis.
Meanwhile, the Producer Price Index rose 4.7 per cent year-over-year, down from 5.5 per cent in June, indicating a cooling in wholesale prices.
Read more: Managers still see growth in Middle East
As a result, there was a steepening of the US curve, as front-end yields fell and the likelihood of the Federal Open Market Committee hiking in September fell to 30 per cent, Muzinich reported.
“Corporate credit markets continued to grind higher, with the status quo restored,” said Hyland.
He noted that within corporate credit, high yield benefitted from its “superior coupon” to continue to outperform its investment-grade peers.
Regarding the “reopening” of the Strait of Hormuz and how much oil is “finding an exit”, Hyland estimated that five to nine million barrels per day are leaving via the Strait.
“This still leaves a shortfall, but it may help explain the reluctance of oil prices to spike higher,” he added.
Global institutional asset manager Muzinich & Co specialises in private markets strategies spanning sponsored and non-sponsored direct lending, capital solutions, parallel lending and aviation finance.
