The two decisive trends for the credit (corporate bond) market and corporate borrowing costs

Once the health crisis is over, we believe that the credit market (the market for corporate bonds but also the market for bank credit) will be shaped by: A permanent rise in risk aversion; A permanent rise in corporate debt. This is likely to result in: A lasting rise in credit spreads (and in interest rate margins on bank loans); A larger rise in credit spreads the lower the credit rating, therefore the greater the effect of the rise in debt on default risk; A downgrade of the average corporate rating. Altogether, the result can be expected to be an increase in companies’ borrowing costs, especially for those that were already more fragile.