As we begin the second half of play in 2023, it’s a good time to reflect on the events of the past six months and try to predict how the rest of the year will play out. 

I will readily admit many of my predictions were wrong for this year. 

For one, I had expected more financial distress in the first half and widening of spreads, before seeing a recovery in the second half. My fear now is that this could happen in reverse. 

I did correctly caution, however, about the January effect, which was particularly strong this year, adding that markets respond to flows more than prose. I subsequently recommended caution, which seemed warranted after the collapse of SVB and Credit Suisse, but have been surprised how quickly this was shrugged off, and the path of least resistance may be even tighter spreads.

After risk-assets posted a sorry set of negative returns in 2022, the rebound in the first half has been impressive. But for EHY it is worth noting that all the spread improvement in the iTraxx Crossover came in January (from 479 bps to 410 bps) — the same level as at the end of June.