Beware of the €-$ HY scissors’ effect in spreads

Strong discrepancies between total return (-1.3% last week) and asw spread performance last week (-1.5bp on average) in the credit market, in light of the heavy rate repricing following Germany’s “whatever it takes” (€500bn infrastructure fund + increased defense spending beyond the Golden rule) and the European Commission announcements (up to €800bn defense investments) . Total-return wise, IG credits and Sub Insurance underperformed with -1.5% over the week, but mainly on the back of their higher duration. € High Yield and Hybrids outperformed with -0.5% and -0.6%. Real Estate was the only real underperformer, with a -1.9% total return last week and a 9bp spread- widening last week ( while the non-financial senior index closed the week tighter by 2bp in asw ) . The movement in High Beta REITs was particularly alarming, with 2 to 4 price figures decline for Hybrid debts issued by Arndtn and Heibos notably. Assuming we see some stabilization on the rate front after the 40bp move up on the 10Y Bund’s yield, REITs should recover as their premium is back to almost 30bp vs similarly rated corporates now. On the other hand, Autos outperformed on the back of a postponement of US Tariffs to Mexico and Canada to April 2 . Against this background, t he downgrade of Stellantis and Forvia by S&P to BBB and BB- respectively did not hurt the market as the stable outlook given by S&P reassured. Only Nissan’s rating was downgraded by one notch to BB with an outlook that is still negative.