In what turned out to be another volatile year, credit markets remained resilient in 2023, posting both positive excess and total returns. Looking at 2024, there is room for more optimism in the credit space, with expectations for strong total returns and continued demand from investors seeking high-quality duration and longer-maturity investment solutions, supported by anticipated interest rate cuts by major central banks.
Investment grade credit valuations are considered attractive, particularly in the Eurozone. European spreads offset a potentially challenging backdrop and they are relatively cheap compared to history. Financials, especially banks, are favoured over non-financials, and we hold a positive view on euro subordinated debt as well. Technicals paint a supportive picture for the high yield segment, as the asset class’s carry is well above the medium-term level and fundamentals are solid, presenting opportunities for investors.
The Green, Social and Sustainability bond market offers further opportunities. With Europe spearheading the advance, the market has experienced significant growth on a global scale and provides an actionable lever for achieving impact and net zero goals. Green bond investing has become a global asset class, offering diversification opportunities for actively managed portfolios. With changing regulations, central banks’ focusing on greening their balance sheets, increasing investor demand and improving transparency will generate a positive impact on the market.
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