Corporate credit

Credit’s response as the policy brakes tighten

As central banks seek to put the brakes on higher inflation, Tom Ross, Corporate Credit Portfolio Manager, considers three things that concern him about credit markets and three things that excite him.

KEY TAKEAWAYS

  • Tighter monetary policy initially manifested itself though higher yields, but rising growth concerns have contributed to wider credit spreads.
  • Markets are pricing in the potential for some slowdown of the economy, but we would expect spreads to widen further if a recession becomes more certain.
  • In terms of credit fundamentals, i.e., strength of balance sheets, companies are in reasonable shape, and with valuations now more attractive, opportunities are opening up for investors prepared to take a selective approach.

KEY TAKEAWAYS

  • Tighter monetary policy initially manifested itself though higher yields, but rising growth concerns have contributed to wider credit spreads.
  • Markets are pricing in the potential for some slowdown of the economy, but we would expect spreads to widen further if a recession becomes more certain.
  • In terms of credit fundamentals, i.e., strength of balance sheets, companies are in reasonable shape, and with valuations now more attractive, opportunities are opening up for investors prepared to take a selective approach.

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