Fitch warns of significant credit risks due to persistent inflation and high interest rates, as bond market turmoil continues.

Fitch Ratings is emphasizing that the main concern for the global credit landscape remains focused on persistent high inflation and interest rates. In its recent Risk Headquarters report, the credit rating agency notes that although headline inflation rates have decreased in the US and eurozone during the second quarter of 2023, core inflation has exceeded central bank targets. While the overall macroeconomic picture has improved, Fitch acknowledges potential challenges due to tighter lending conditions and a cautious approach by central banks. Fitch’s forecasts predict a shallow recession in the US, limited growth in the eurozone, and increasing risks to China’s recovery. The agency also highlights vulnerabilities in the commercial real estate sector, particularly in China, which could hinder its post-pandemic recovery. The US commercial real estate sector is also facing difficulties, with prominent mortgage real estate investment trusts reducing new lending. The bond market has experienced volatility, leading to a surge in Treasury yields, especially in longer-term maturities. The benchmark 10-year Treasury yield has surpassed 4.30%, approaching the previous peak seen in October 2022. Exchange-traded funds tracking longer-term Treasury bonds have also faced challenges. Corporate bonds issued by US companies have also been affected by the volatility, with the effective yield on high-grade corporate bonds reaching its highest level since November 2022. Bonds issued by companies like Ely Lilly & Company and Elevance Health Inc. have experienced significant drops.