Demand ‘may rise in US and European credit markets’

MANAMA: Investcorp expects a near-term surge in demand in US and European credit markets, fuelled by excess savings and strong income growth.

Releasing a quarterly house view analysing recent performance, headwinds and tailwinds on the global credit markets, the Bahrain-based alternative investment manager said the surge will meet a supply side still scarred by the effects of the pandemic.

“In Q1 2021, US credit markets have embraced expectations for a strong economic rebound fueled by macro tailwinds, although rates and inflation concerns are creating pockets of volatility,” said Investcorp Credit Management global head Jeremy Ghose.

“This imbalance should push the inflation rate in the US above three per cent, whilst in Europe, a larger output gap and a tighter policy mix points to a conservative reflationary impulse.”

He explained that unleashed fiscal power supported by loose monetary policy can be a potent growth cocktail, but it also naturally induces questions over the outlook for inflation.”

According to the report European markets have remained ‘risk-on’ in Q1 2021, with European leveraged loans outperforming high yield.

Looking ahead, European market fundamentals remain problematic when compared to the US.

Global credit markets continued to demonstrate their robustness throughout the first quarter of 2021 as the speed of economic recoveries accelerated.

In the current period of rising rates and inflation, senior loans are an attractive asset class given their low duration and floating rate nature and should outperform in Q2.

Philip Yeates, head of European Credit Funds at Investcorp commented: “In light of European credit market dynamics, we continue to conservatively position our portfolios to take advantage of short-term trading opportunities provided by market volatility. We expect that as new primary transactions continue to launch in the remainder of 2021, we will be provided with fresh opportunities to rotate portfolios to increase yields. We remain focused on continuing to identify attractive investment opportunities where we have high conviction in the business quality, liquidity and post-pandemic recovery prospects.”





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