Credit markets faced a wave of renewed uncertainty in Q1—on the geopolitical and trade policy fronts, on the path of interest rates, and with regard to commercial loan quality, especially in private credit. Our base case assumes that these concerns are not sufficient to trigger a turn in the credit cycle or materially derail economic or corporate earnings growth.
What are we watching? Inflationary pressures; developments in the Middle East and their impact on energy and fertilizer prices; the resilience of consumer spending as headwinds build; and the promise of artificial intelligence (AI), which underpins a disproportionate share of expected economic growth.
While credit spreads have retraced much of the widening observed in Q1, yields remain sufficiently attractive to provide the income and diversification benefits investors seek in this imperfect environment—particularly relative to stocks, which have rebounded sharply from their Q1 sell-off…
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