Global credit rallied sharply in July, as the post-Brexit fears faded quickly after several benchmark government bonds hit record lows early in the month along with a 31-year low for the British pound vs US dollar. The strong US employment report, coupled with the anticipation of aggressive Bank of England rate and quantitative easing actions, which actually came to fruition in August, drove both the equity and fixed income markets sharply higher.

• The average spread basis between North American and European loans ended the month at -44bps, which is the widest basis over the past 12 months. North American and European spreads were mixed across ratings, sectors, and regions in July. North American loans continued to outperform European loans, with the former generally tightening over 20bps more than the latter during the month
• The post-Brexit recovery continued apace in July as credit markets bounced back from the political upheaval in the UK. The Markit iTraxx Europe started the month at 84bps, some 15bps tighter than the 99bps level reached shortly after the referendum. The rally didn't stop there; by the end of July the index was trading at 67bps, the tightest level this year
• The most notable trend in July, and indeed in 2016, was the outstanding performance of sterling denominated corporate debt. Total returns in the Markit iBoxx " Liquid Investment Grade Index were up 5.2% over the month, easily outpacing the respectable 1.72% and 1.24% achieved by the Markit iBoxx " Liquid Investment Grade Index and the Markit iBoxx $ Liquid Investment Grade Index
• In June we saw the Brexit contagion impact all of the European members of the G7, with Germany, Italy, France and the UK hitting their widest CDS levels for the year. However, the contagion proved short-lived, and European sovereigns mounted a strong recovery in July. Highlighting the strength of UK sovereign bonds, the Markit iBoxx " Gilts 25+ year index has returned almost 30% over the past 12 months (Figure 1)
• Total municipal bond issuance dropped sharply to only $27.2bn in July, which is a 40% decline versus the record setting June and 19% below last July's total. YTD issuance is only 2.6% below the same period in 2015. This somewhat tepid issuance, during a time of record low rates, indicates that governments held a strong degree of fiscal discipline, as the widespread perception that low rates indicates a negative economic climate has made issuers reluctant to pile on new net debt this year
• Global securitised products rallied across the broader sector in July, as low rates, historically wide spreads, and strengthening US employment data increased overall investor demand. The US consumer ABS market had a particularly strong month, as a surge in new issuance was met with incessant investor demand and spreads tightening gradually alongside each new deal that was priced

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