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Global Credit Market Summary: April 7, 2025

Key Findings Across Regions and Asset Classes

• Credit Spreads Widening: Overall credit spreads widened significantly, resulting in negative excess returns in most regions. This was driven by broader market downturns and macroeconomic headwinds.
• US Market Performance:
  • Investment Grade (IG) spreads widened by 16bps, leading to a -108bp excess return; performance was underwhelming despite higher supply.
  • High Yield (HY) spreads expanded by 87bps, contributing to a -258bp excess return, with transportation, energy, and retail sectors struggling the most.
  • Leveraged Loan markets saw a 39bps spread increase, with total returns falling by 136bp amid net outflows.
• European Market Performance:
  • IG spreads widened by 23bps, with a -109bp excess return; BBBs underperformed, and healthcare sector struggled.
  • HY spreads increased by 57bps, leading to a -200bp excess return, with outlier activity noted.
• Asia Market Performance:
  • Credit spreads widened across the board, with mixed supply-demand dynamics; specific Asian sub-sectors showed resilience in certain areas, but overall sentiment cautious due to economic uncertainties.
• Asset Class Trends:
  • Equity and commodity prices declined in major markets, impacting credit fundamentals; real yields remained range-bound in some cases.
  • Debt outstanding and maturity walls indicated potential refinancing challenges, particularly in high-yield segments.
• Sentiment and Fundamentals:
  • Credit sentiment indicators showed bearish signals, with reduced institutional demand in credit funds.
  • Fundamentals were pressured by rising default risks and rating downgrades, though some sectors (e.g., utilities in the US) held better.

Notable Market Dynamics

• Supply and Demand Imbalances: Global credit supply reached record levels in some regions, but demand weakened, with Asia showing varied inflows/outflows.
• Macro Risks: Headwinds from inflation, interest rate volatility, and geopolitical concerns contributed to tighter credit spreads and higher perceived risks.
• Key Risk Factors: Elevated default rates and rating changes highlight vulnerabilities in vulnerable sectors, while curve steepening created uncertainties in duration positioning.

This analysis is based on Morgan Stanley Research data and should not be used as investment advice. Refer to the full report for detailed methodologies and disclosures.