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U.S. CREDIT TOTAL RETURNS MORE ATTRACTIVE THAN EUROPEAN

Credit spreads, which blew out in April, are back to their tightest level since COVID on both sides of the Atlantic, moving broadly in line with stock markets.

According to Goldman Sachs, because U.S. benchmark rates are much higher than European, this means U.S. credit is now much more attractive on a total return basis.

In a note on Thursday, the bank's strategists estimate the excess yield offered by 5-year dollar investment bonds over their euro peers currently stands at 1.8%, in the 75th percentile in the post-crisis period.

Of course, what about a big U.S. slowdown? Not quite as near the top of mind for markets as it was earlier in the year, but still not gone.

Well, Goldman note, on a total return basis it doesn't matter much, because they think the rates/spread correlation will be negative - if we've got that right that means if spreads widen, yields will fall.

"That leaves the bar quite high to derail total returns in the USD IG market."

(Alun John)

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