All the Credit Navigating Default Lines
Feb 28, 2023
Brian Barnhurst, Co-Head of Credit Research at PGIM Fixed Income, and Gary Horbacz, Head of Securitized Products Research, delve into the current credit landscape. They discuss the growing concerns over borrower credit quality amid rising interest rates and economic pressures. The conversation covers the struggles in corporate credit and commercial real estate due to inflation and shifting work trends. Insights on consumer defaults reveal the resilience of certain job sectors, while also addressing the changing dynamics in lending practices.
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Corporate Credit Health Depends on Growth
- Corporate credit fundamentals remain in an okay place despite recent challenges like high inflation and supply chain issues.
- Credit quality now depends heavily on economic growth, with a severe downturn posing bigger risks.
Downgrade Patterns Vary by Market Tier
- Loan markets have seen more downgrades than high yield bonds due to poorer credit quality and floating rates.
- High yield credit upgrades still outnumber downgrades, reflecting a healthy baseline quality.
European Property Faces Sector Divergence
- European commercial real estate suffers due to rising rates and energy issues, especially in office sectors.
- Well-located, high-quality properties are expected to fare better than lower-quality ones.