December 2021 / FIXED INCOME
Credit Investing Roadmap for 2022
Navigating the credit cycle and the road ahead
Key Insights
- Credit fundamentals across high yield and investment grade corporates are generally robust, in both emerging and developed markets.
- On aggregate, we are broadly positive on high yield, neutral on investment grade and somewhat negative on emerging markets.
- Within high yield, we see particular value in the leveraged loan market, and in areas such as mandatory convertibles and second lien loans.
- In high yield, we expect to see a trend of rising stars migrating into investment-grade space, so the name of the game in 2022 will be predicting the upgrades.
- In investment grade, amid inflation concerns, rising yields and the prospect of central bank tapering, the proportion of sub-zero debt is smaller than it was this time last year. The question is whether that will alter investor behaviour.
- For investment grade investors, a key theme is semiconductor supply chain issues, especially in the auto sector. We think challenges will persist in 2022, but we think the bigger challenge to credit quality will be the transition to electric vehicles.
- While emerging market (EM) corporate fundamentals are generally healthy, tight valuations and numerous headwinds keep us broadly neutral on the asset class. In Asia credit, Evergrande’s woes have hit sentiment towards Chinese high yield, but the investment grade sector has remained resilient. Elsewhere in EM, political and policy uncertainties continue to weigh in the Central and Eastern Europe, Middle East and Africa (CEEMEA) and Latin American regions.
IMPORTANT INFORMATION
This material is being furnished for general informational and/or marketing purposes only. The material does not constitute or undertake to give advice of any nature, including fiduciary investment advice, nor is it intended to serve as the primary basis for an investment decision. Prospective investors are recommended to seek independent legal, financial and tax advice before making any investment decision. T. Rowe Price group of companies including T. Rowe Price Associates, Inc. and/or its affiliates receive revenue from T. Rowe Price investment products and services. Past performance is not a reliable indicator of future performance. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested.
The material does not constitute a distribution, an offer, an invitation, a personal or general recommendation or solicitation to sell or buy any securities in any jurisdiction or to conduct any particular investment activity. The material has not been reviewed by any regulatory authority in any jurisdiction.
Information and opinions presented have been obtained or derived from sources believed to be reliable and current; however, we cannot guarantee the sources’ accuracy or completeness. There is no guarantee that any forecasts made will come to pass. The views contained herein are as of the date noted on the material and are subject to change without notice; these views may differ from those of other T. Rowe Price group companies and/or associates. Under no circumstances should the material, in whole or in part, be copied or redistributed without consent from T. Rowe Price.
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Justin Gerbereux is the head of Global Fixed Income Research in the Fixed Income Division. He is an Investment Advisory Committee member of the Floating Rate Fund, High Yield Fund, Institutional Income Funds, and International Funds. He is chairman of the Fixed Income Research Advisory Council and Fixed Income Steering Committee. Justin is a vice president of T. Rowe Price Group, Inc., T. Rowe Price Associates, Inc., and T. Rowe Price Trust Company.
