Trends in the Credit Markets

9 snips

Jul 25, 2025

Collin Martin, Director and Fixed Income Strategist at the Schwab Center for Financial Research, shares his insights on the evolving credit markets. He highlights the recent surge in leveraged loan issuance despite rising interest rates, discussing the risks and unique features of these loans. The conversation also covers the allure of Treasury Inflation-Protected Securities (TIPS) as a hedge against inflation. The experts emphasize the need for caution amid mixed signals from the Federal Reserve and economic indicators that could impact future market dynamics.

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INSIGHT

Earnings Season and Market Sentiment

Earnings season is tracking roughly in line with expectations, showing about 6% growth amid tariff uncertainties.
Market punishes companies missing earnings estimates more than it rewards those beating them, indicating higher sentiment standards.

INSIGHT

Fed Chair Pressure Risks Market Confidence

Confidence in Federal Reserve Chair Jerome Powell is challenged amidst political pressure, yet he retains market trust.
Removing a Fed Chair under pressure risks market confidence, the dollar's strength, and could push long-term rates higher.

INSIGHT

Fed Stance Influences Market and Yields

The market may rally partly because the Fed isn't cutting rates since it may lack ammunition to do so.
Bond yields remain range-bound due to fiscal concerns and anticipated supply rather than expectations of imminent Fed cuts.

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On this week's episode, Kathy Jones and Liz Ann Sonders discuss equity earnings season, continuing tariff uncertainty, and the fate of embattled Fed Chair Jerome Powell—emphasizing the importance of an independent Fed to both the stock and bond markets.

Then, Kathy Jones and Collin Martin dive into the dynamics of the leveraged loan market, highlighting the recent surge in issuance despite anticipated interest rate hikes. They explore the unique characteristics of leveraged loans, including their floating coupon rates and sub-investment grade issuers, touching on the factors driving demand and the potential risks for investors. Additionally, they discuss Treasury Inflation-Protected Securities (TIPS), noting their appeal for investors looking for diversification and a hedge against inflation.

Finally, Kathy and Liz Ann discuss the data and economic indicators they will be watching in the coming week.

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Lower rated securities are subject to greater credit risk, default risk, and liquidity risk.

Treasury Inflation Protected Securities (TIPS) are inflation-linked securities issued by the U.S. Government whose principal value is adjusted periodically in accordance with the rise and fall in the inflation rate. Thus, the dividend amount payable is also impacted by variations in the inflation rate, as it is based upon the principal value of the bond. It may fluctuate up or down. Repayment at maturity is guaranteed by the U.S. Government and may be adjusted for inflation to become the greater of the original face amount at issuance or that face amount plus an adjustment for inflation. Treasury Inflation-Protected Securities are guaranteed by the U.S. Government, but inflation-protected bond funds do not provide such a guarantee.

(0725-NVEU)