What a difference a few months makes.
Spreads proved resilient and markets functioned — yet investors aren't being paid to take risk in lower-quality or long-duration credit. Brian Carney on the quarter, plus four features from the desk.
What a difference a few months makes
Worries tied to the inflationary impact of the Middle East conflict moved market predictions from rate cuts at the start of the year toward likely hikes, lifting global government yields and flattening curves. The question of "what next" now rests with politicians and central bankers, including the newly confirmed Fed Chair, Kevin Warsh.
Other risks remain largely discounted, or in the case of private credit, contained for now. Against this backdrop, credit spreads proved resilient — global investment grade and high yield at 48 and 243bps, slightly tighter than the start of the year and, in our view, still expensive.
Markets remain tilted in favour of borrowers over lenders, with less and less differentiation between issuers of very different credit quality. We see select opportunities in high yield, but overall the environment warrants a conservative posture: investors simply aren't compensated for assuming risk in lower-quality or long-duration credit.
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