Global Credit 4Q23: Value in Scarcity
Remain cautious on High Yield credit amid widening yield spreads
Chief Investment Office29 Sep 2023
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Switch from cash to A/BBB credit in the 3Y-5Y duration segment. Remain cautious on High Yield credit amid widening yield spreads as defaults are expected to pick up come 2024.

  • Inflation volatility to persist as Fed tightening is counteracted by stimulative deficit spending; Rates may have to stay high longer than investors expect
  • Higher expected treasury issuances would crowd out private sector corporate issuances. Position with IG credit given (a) stronger balance sheets to tide through elevated-for-longer rates environment, and (b) technical tailwind of diminishing issuance and supply
  • Remain cautious of HY credit; Spreads to widen as defaults pick up in 2024; Prefer to avoid duration risks given prevailing inflation uncertainty and challenging supply-demand dynamics for longer dated treasuries
  • Deploy cash into A/BBB credit in the 3-5Y duration segment, as peaking deposit rates imply that cash reinvestment risks have increased. Attractive front-end yields of >5% offer good compensation for unexpected volatility in interest rates

Figure 1: 2020s inflation echoes its wartime past

Source: Bloomberg, Federal Reserve Board, Centre for Financial Stability, St Louis Fed, Jordà Schularick-Taylor Macrohistory Database, DBS


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