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Investment grade outlook - security selection may be key to managing uncertainty
Damir Bettini
2023年2月23日
• Investment grade credit is now priced for central banks to achieve the perfect soft landing – a feat they have never achieved before. Despite the market’s conviction, the macro-economic outlook remains uncertain.
• Dispersion has increased within investment grade and will likely rise further as the macro-economic environment evolves.
• Among the sectors where we continue to find opportunities are banks, utilities and technology companies.
We recently sat down with Damir Bettini, Principal Investment officer of the Capital Group Global Corporate Bond strategy to discuss the outlook for the investment grade bond market and where he is finding opportunities.
Damir discussed how the current environment provides an opportunity for long-term investors to lock in total returns, but there remain uncertainties that could increase volatility in the short term. He emphasised that security selection and thorough, in-depth, bottom-up fundamental research will be key to capturing opportunities as we move into an environment where increased financing costs will likely cause some business models to struggle and credit quality to deteriorate.
He highlighted the shift in market sentiment that has occurred since October 2022 and how the subsequent rally means that the Investment grade bond market is now priced for perfection. Current spread levels, he observed, are consistent with central banks achieving the perfect soft landing - a feat that they have never managed before.
Despite the market’s conviction, Damir believes that the economic outlook remains highly uncertain. He would like to see credit spreads around 175 to 200bps, which would take them to a level that starts to reflect the risk of recession before he would be comfortable adding risk.
An important development in the Investment grade market over the past year has been an increase in dispersion. Damir discusses this development and why for active managers like Capital Group, it can provide investment opportunities. He also talks about areas of the market where he is finding opportunities namely, banks, utility and technology companies.
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Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. All information is as at the date indicated unless otherwise stated. Some information may have been obtained from third parties, and as such the reliability of that information is not guaranteed.