Dovish central banks extend cycle: higher corporate credit allocation may be warranted

22/05/2019

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Portfolio Manager Mayur Saigal discusses the fixed income landscape and why a higher allocation to corporate credit may be warranted today versus 2018.
 
Key takeaways:
  • The dovish tone struck by central banks in 2019 is reminiscent of 2011 and 2012, when the Federal Reserve’s (Fed) and the European Central Bank’s (ECB) focus on pledging to do what it takes helped to dampen volatility and reduce both credit risk and term premiums.
  • The most significant difference is the starting levels of corporate credit spreads within investment grade and high yield, which are close to their long-term average levels and are likely to be range-bound from here.
  • Despite the range-bound environment, central bank actions appear to have extended the credit cycle and possibly warrant a higher allocation to credit today as compared to late 2018, but selectivity is required.

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