Market & Topical Perspectives

Alternative Credit: 1Q22 Review

Alternative Credit: 1Q22 Review

Persistently high inflation readings and the prospect of more restrictive monetary policy drove Treasury yields higher across the curve during the first quarter, pressuring fixed income in general and duration-sensitive assets more specifically.

Key Takeaways

  • Key-Takeaway

    While fixed income in general has struggled in the face of rising interest rates, floating-rate assets like broadly syndicated loans and direct lending historically have demonstrated resilience.

  • Key-Takeaway

    Interest coverage may represent a potential hazard to watch in the loan market going forward, as the rally in loan reference rates means that a number of borrowers face higher debt-servicing costs.

  • Key-Takeaway

    Direct lending activity also was down, not surprising given seasonality and the public market volatility that emerged during the period.4 Given vast amounts of private equity dry powder, deal flow, in our view, seems unlikely to remain subdued for long.

  • Key-Takeaway

    Market complications that we expected to emerge in the second half of 2022 may have been pulled forward by the impacts of Russia’s invasion of Ukraine. We believe deep credit analysis is of particular value in nuanced markets like today’s.