Both US and European credit markets have delivered a fairly positive yearto- date performance; supported by falling political risk, excess returns versus underlying government bonds proved to be particularly strong for EUR corporate bonds in the second quarter.

On the back of this rally, it is unsurprising that valuations generally tightened. In this piece we address the current situation in IG and HY corporate credit valuations on both sides of the Atlantic, using our fair value models, while also taking into account the implied default risk for HY bonds. We also assess the potential impact on spreads of higher bond yields, through the empirical link between absolute and relative credit risk premiums.