Credit markets are not immune to the ongoing volatility in global stock markets sparked by the rapid spread of the coronavirus.
According to research by index provider MSCI, investment-grade and high yield bonds could drop a further 8% and 19% respectively.
The analysis is hypothetical, the firm said, and draws on parallels with the 2008 financial crisis using a “stress test” on current market conditions.
Although Covid-19’s impact on some credit markets has not yet led to losses as steep as those seen in 2008, the trajectory is similar, MSCI said, highlighting that credit is “under pressure”.
Thomas Verbraken, executive director of MSCI Research said: “The dramatic spread widening in 2008 had been preceded by a more gradual, yet significant, spread widening that began in August 2007, as credit conditions began to deteriorate.”
“In contrast, the recent sudden widening of credit spreads followed an economic environment that was generally described as positive and that kept spreads at relatively tight levels in 2019 and early 2020.
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