UBS Equities-Global Strategy _6 Key Credit Market Themes for 2024_ Mish-106380113
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Global Strategy
6 Key Credit Market Themes for 2024
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Fundamentally, we see US IG/HY spreads supported in a 90-115/ 300-375bp range in
coming months amid more evidence of green shoots in growth and credit data detailed
below coupled with declining inflation, assuming limited surprise in Friday's CPI
revisions. Technically client positioning is pretty close to average, ETF inflows remain
elevated while pent-up demand from total return investors is still flowing into the
market, and net issuance remains limited with M&A/LBO supply fairly subdued. Seasonal
factors through February-March are neutral-to-slightly negative for spreads. The largest
hurdle optically is valuations, but they appear less expensive now given sideways trading
and the recent data strength. Historically tight valuations are more of an impediment to
12-month, not 6-month, performance. In US IG we prefer the belly of the curve (3-7yr),
triple B corporates, and the utility and telecom sectors. In US HY we favor double and
single Bs, tech, and noncyclical sectors - acknowledging these views will pivot on
election outcomes.
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Our credit-based recession model probability eased 6pp to 24%, driven by less
tightening in bank lending standards. Recent data uniformly points to improving credit
availability: one, net tightening in bank C&I loan standards to small firms fell from
30.4% to 18.6% q/q; loan officers project this to improve further to 1.8% by end-24;
two, the improvement is now in-line with our non-bank liquidity indicator which has
signalled less tight conditions for several quarters; three, US corporate issuance has been
robust YTD (+71% YTD y/y), led by leveraged loans (+331% YTD , Figs 1-4).
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Our lower rated corporate debt indicators are positive: bank and non-bank markets are
suggesting further improvement in lending conditions, US LL ratings migration was net
positive in January, and private credit defaults declined again in Q4 (from 3.9% to
3.4%). On commercial real estate: the indicators are more neutral: the SLOOS survey
signalled less tight financing conditions ahead, but default rates remain bifurcated
across sectors: office and multifamily continued to rise in January m/m (to 6.2 and
2.8%), while retail, lodging and industrial declined (to 5.6, 5.1 and 0.4%). On consumer
credit: indicators are also more mixed; our US consumer health gauge looks a bit better
(z-score -0.2); bank loan standards are projected to remain little changed in 2024; but
delinquencies continue to climb modestly to 1.4%, led by cards (6.4%, Figs 5-7).
(
US HY ETF flows, more closely correlated with spreads, are holding up despite recent
interest rate volatility. Fund manager betas are about average in US IG and US HY, similar
to mid-2019, largely consistent with anecdotal evidence from client meetings that
investors are hugging benchmarks. US LL betas, in contrast, are well above average and
an outlier. Cash balances, however, are below average for IG, but near average for HY
and LL. Lastly, our work shows largely neutral seasonals in February, before a slightly
more challenging March (Figs 8-11).
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US IG and HY credit spreads at 95bp and 332bp, respectively, have essentially traded
sideways to start 2024. But strong data, led by the January US ISM composite at 53, has
narrowed the gap between market and fair value estimates with HY fair value at 377bp
(roughly +0.5 stdev rich). The market has digested the recent volatility in short end rates
in an orderly fashion, and with 4.5-5 cuts priced to year-end we see limited room for
disappointment (given the Fed’s forecast for 3 cuts and a skew towards greater vs. lesser
This report has been prepared by UBS Securities LLC. )*)+& (&,,()&,-* )*. /,. .,(-0 123456127
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Global
IJI0()
Strategist
matthew.mish@ubs.com
+1-203-719 1242
KI
Strategist
james.martin@ubs.com
+1-212-713 7960
+ L
Strategist
younghoon.kim@ubs.com
+1-212-713-2307
K(M
Strategist
julien.conzano@ubs.com
+44-20-7567 2067
FFJN
Strategist
bhanu.baweja@ubs.com
+44-20-7568 6833
6 February 2024 ab 2
cuts). Our economists’ see inflation uncertainty as elevated in the next few months, but
with downside risks. Further out in 2024 they are calling for Jun ’24 core CPI/PCE at
3.0/2.1% and Dec ’24 at 2.4/1.8%, respectively, reducing the risks to credit in a no
landing scenario as even core PCE in the 2.25-2.5% context is likely to support several
Fed rate cuts later this year (Figs 12-14).
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Near-term we marginally favor HY/LL over IG in a carry rich environment, with a slight
preference for HY given the support of solid fundamentals and technicals. Thematically,
the 2024 election remains the dominant topic in client meetings: our colleagues have
argued that the set-up for a Trump win in 2024 is very different than in 2016 for
markets. In our view, of three key US issues: taxes, trade, and foreign policy- trade is
potentially most immediate and salient. Contextualizing US index and sector spreads
today vs. 2016-2020 yields a few initial (too early) observations: first, index spreads are
already trading at the tights of late ’17 after Trump’s election and tax cuts were passed;
second, sector spread valuations today are quite different to end ’17 before the onset of
Trump’s tariff. Taking into account valuation differentials and 1H ’18 performance amid
tariff escalation, sectors better positioned on these metrics are US IG utilities and
financials while telecoms and basics look weaker; in US HY telecoms and tech screen
better while transports and consumer cyclicals appear worse off.
(Charts on the next page)
6 February 2024 ab 3
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24%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
'90 '92 '95 '98 '01 '03 '06 '09 '12 '14 '17 '20 '23
Recession Probabilitiy
Recession Dates Fwd 1 yr Recession Probability
Source: Bloomberg, FDIC, BEA, NBER, UBS estimates
-$ (P,0(
! $ $N
O
(40)
(20)
0
20
40
60
80
100
Oct-00 Oct-03 Oct-06 Oct-09 Oct-12 Oct-15 Oct-18 Oct-21 Oct-24
Lending Standards
Recession shading Credit cards Auto loans CRE loans C&I loans
Source: Federal Reserve, NBER, UBS
' &
! 0 J O J O Q
$R
-40
-20
0
20
40
60
80
Jan-08 Jan-10 Jan-12 Jan-14 Jan-16 Jan-18 Jan-20 Jan-22 Jan-24
Lending Standards
Non-Bank Liquidity Indicator SLOS: % of banks tightening small firm C&I loan standards
Tighter credit conditions
Easier credit conditions
Source: Federal Reserve, Bloomberg, UBS
) $ S,T
"+TUSVG#%TU0
SV''#%TU
188
31
71
100
9.1
-75%
0%
75%
150%
225%
300%
375%
0
40
80
120
160
200
240
US IG US HY US LL EU IG EU HY
Issuance YoY
Issuance ($bn)
Gross issuance YTD YTD y/y chg (%, rhs)
Source: Bloomberg, Pitchbook LCD, UBS
W R J
((( . J $ SHH0
UK
0%
5%
10%
15%
20%
25%
30%
35%
Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Jan-21 Jan-22 Jan-23 Jan-24
Share of index (%)
BB- CCC+ to C D
Source: Pitchbook LCD, UBS
(Q$$$
J!$!!0! 0
0 !
0
5
10
15
20
25
Jan-17 Sep-17 May-18 Jan-19 Sep-19 May-20 Jan-21 Sep-21 May-22 Jan-23 Sep-23
Delinquency Rate (%)
Multifamily Lodging Industrial Office Retail
Source: Bloomberg, NY Fed, UBS
摘要：
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作者：梧桐
分类：外资研报
价格：免费
属性：9 页
大小：569.11KB
格式：PDF
时间：2024-03-02
