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Valens Credit Weekly Insights for May 12, 2021

May 12, 2021

Featured Top Idea
HES – Hess Corporation
Trade: Buy 2024 3.500% Bonds CUSIP: 42809HAF4 (1.479% YTW, 0.719% iYTW)
Trade: Buy 2026 5.625% Bonds CUSIP: 42809HAG2 (2.236% YTW, 1.226% iYTW)

Aggregate Credit Market and Credit Fundamental Review
Recently, the Aggregate cost to borrow for all credits (High Yield – HY, Cross-Over – XO, and Investment Grade – IG) has broken from the exceptionally low levels it has been in for the back half of 2020. The risk-free rate has risen significantly around concerns about inflation and positive signals about an improving economy. However, while total cost to borrow for IG and XO markets has risen by roughly 50bps recently, and HY cost to borrow has risen by almost 150bps, it is not cause for alarm. Cost to borrow for IG and XO markets remains at historic lows absent the last 6 months, having only risen to levels in-line with or below levels from the mostly sanguine 2013-2017 period, not signaling imminent concern. If anything, this appears to just signal a return to a normal environment.