Canary in the Credit Market: Are Euro Single-Bs Singing?

My Bloomberg monitor and my TV are telling me different stories. Headlines are dominated by conflict, energy shocks, and warnings about inflation and supply chains. Yet my Bloomberg screen suggests a very different picture: equities are at record highs and credit spreads are tight.

Single-Bs, however, haven’t got the memo. While all other credit grades have tightened since the Iran conflict began at the end of February, Euro single-Bs are wider (+12bps) and have seen the largest widening since the start of the year across all credit grades (+60bps). 

So, what’s happening? Well it doesn’t seem to be a change in credit risk sentiment, as US Dollar single-Bs have tightened, as have the riskier triple-Cs. Flows into high yield have also been strong lately, boosted by an attractive yield and ongoing demand from fixed maturity funds, which tend to prefer double-Bs, often at the expense of single-Bs.

Single-Bs are certainly offering more relative value than they have in a while. But perhaps that’s not the right question. If they are the canary, the more important question is whether the rest of the credit market is listening?