It’s one reason why BNP Paribas SA strategists said this week that the post-crisis credit supercycle will run longer than previously anticipated, dubbing 2019 the “year of deleveraging” across America and Europe.
Still, while bonds are getting a helping hand from benign technicals like modest net supply, it’s not unabashed enthusiasm out there. Bonds rated CCC have struggled to best better-rated junk peers and valuations are looking rich across the risk spectrum.
HSBC Holdings Plc is now “mildly bearish” on both high-grade and high-yield U.S. credit given the stellar start to the year. What’s more, some investors are starting to make peace with the equity rally, with implied volatility for stocks evaporating this year alongside that of credit.
But for all that, while sentiment and positioning have scope to rise across both stocks and credit, it’s easier to make the bull case for fixed income in the lowflation climate.
“We are encouraged to fully embrace the bond market and want to be buyers of every backup in yields or widening in credit spreads,” Bob Michele, CIO and head of global fixed income at JPMorgan Asset Management, wrote earlier this month. “At some point, there should be a grudging acceptance of the new reality: It’s time to embrace your bond portfolio manager again.”
This article was provided by Bloomberg News.