We might be in the late phase of the US business cycle, but how late? And does that mean we’re nearing the end of the credit cycle?

Fears have been mounting about whether an economic downturn might come sooner than expected, yet different indicators show different things. For instance, the economists of the 1970s and 80s used cardboard and packaging as leading indicators of a downturn – today, they look to heavy trucks and jobless claims.

Meanwhile, the re-emergence of ‘covenant-lite’ loans, which have become a feature of the European private debt landscape, are raising alarm bells in some camps. It is a symptom of this stage of the business cycle that as the fundamentals of corporates begins to deteriorate, so too do the covenants of their debt issuance – something that was witnessed in 2016 when high-yield credit spreads widened.

Each of these narrative threads came together during a lively discussion among senior fund managers from Natixis’ affiliates. A packed audience of institutional investors attended the Credit Cycle event in London at the end of May.

Most agreed that there won’t be a recession this year, although everyone conceded that the ongoing US/China trade war is certainly making firm predictions more fluid. And while there will be a downturn eventually, it doesn’t necessarily have to look like 2008.

Loic Cadiou, Senior Fund Manager, H20 Asset Management, said: “The business cycle underlines the credit cycle and we are definitely in the late stage of the cycle. Households are not yet overleveraged and net private debt is stable. Accumulating leverage is usually an indicator of the end of the business cycle – which suggests that while we are in a late phase, we are still in the early part of it.”

Nicole Downer, Managing Partner, MV Credit, commented: “The financial condition of companies – measured by EBITDA minus capex-to-debt service – is healthier compared to the levels we saw in 2007, acknowledging that the interest rates are much lower now. Investors are more mindful of these indicators and, certainly in the companies we’re looking at, we’re seeing better financial health.”

Tom Fahey, Co-Director of Macro, Loomis Sayles & Company, added: “Capital expenditure is important. And when you look at capex as an indicator, we’re not too far along the cycle. We haven’t had an investment spending boom in the US, it’s more financial engineering than ridiculous overspending.”



Natixis Investment Managers 
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H2O Asset Management LLP
An affiliate of Natixis Investment Managers
Authorised and regulated by the Financial Conduct Authority (FCA) 
FCA Register no. 529105 
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www.h2o-am.com

MV Credit Partners LLP
Registered Number: OC397214
Authorised and Regulated by the Financial Conduct Authority (FCA)
100 Pall Mall 
London SW1Y NQ
www.mvcredit.com

Loomis, Sayles & Company, L.P.,
A subsidiary of Natixis Investment Managers, 
Investment adviser registered with the U.S. Securities and Exchange Commission(IARD No. 105377)
One Financial Center, 
Boston, MA 02111, USA
www.loomissayles.com

This communication is for information only and is intended for investment service providers or other Professional Clients. The analyses and opinions referenced herein represent the subjective views of the author as referenced unless stated otherwise and are subject to change. There can be no assurance that developments will transpire as may be forecasted in this material.