Looking at the latest fixed income asset allocation outlooks, European Investment Grade Credit is frequently overweight. But for very specific reasons. This is leading asset manager selectors to spend more time uncovering more managers that can tap into the latest alpha soruces. Here's what they are discussing.
Despite a traumatic April for Investment Grade Credit, investors are focused on the decade high yields the asset class now offers. Levels that are now comparable to that of High Yield at the start of 2022. But what story do the fundamentals tell?
Whilst many companies have been able to pass on input inflation to consumers, the question is how much pricing power still remains?
And more importantly, does their product demand curve exhibit sufficient inelasticity to sustain profitability and keep balance sheets strong.
The answer varies across industries, with potential credit rating downgrade risk potentially on the horizon.
And if so, are U.S. high yield investors at risk of being over-leveraged at the end of the longest economic cycles in history?