Technical factors could change the game for US credit:
1 / The refinancing needs of US companies will increase significantly in the coming quarters.The level of indebtedness of these companies reached record high levels in 2016. Much of the debt sold by companies in recent years has been used to fund M&A transactions and buyback their own shares. The size of the US IG market has just doubled in recent years.
2/ Investor appetite will be a key factor for US credit. Demand has increased at an unprecedented pace in recent years. In a low yield environment, foreign investors have been motivated by the search for yield: US credit has been treated to some extent as a rate product. Foreign investors currently account for 40% of the USD corporate bond market.
The risk for this asset class is a sudden change in the current yield environment – result of a surprise rise in inflation. In this scenario, the yield on US IG bonds would be less attractive.