Downturn Fears Beat Euro-Dollar Parity Gains for Credit
Inflationary and recessionary fears are overriding potential benefits from euro-dollar parity in European credit market spreads, according to Jayanth Kandalam, head of Europe and ESG at Lucror Analytics.
- Several companies with good liquidity, market presence, credit metrics and cash flows have taken a hit to their spreads in the midst of the credit current market rout, despite the movements in the exchange rate, he wrote in an email to Bloomberg News.
- In principle, the strength of the dollar is supportive for most European credits, particularly if a company’s cost base is predominantly euro-denominated while a large part of their revenues stem from dollar-based transactions.
- For companies with a high share of dollar-based costs, and without corresponding dollar-based revenues, the impact is less pronounced, he said.
- Investors have seemingly flouted these expectations in the context of the economic headwinds hitting the credit market.
- “Mass hysteria” in the market is being staved off by the fact that rating agencies have held back from issuing re-ratings, but with recessionary fears looming, their actions will continue to be monitored by investors, he added.