Goldman Sachs Group Inc. is standing firm on its bullish outlook for US credit, saying companies can withstand tighter lending standards triggered by banking failures in March.
The US is less reliant than elsewhere on banks for capital, meaning that a tightening of lending conditions may have a smaller impact for issuers, strategists including Lotfi Karoui wrote in an April 20 note.
“Now that the dust has settled on the risk of a full-blown financial crisis, the debate has shifted to the ability of the economy and markets to digest the aftershock of the March bank failures,” they said. “Owing to their greater financial flexibility, large and highly rated firms can adapt to tighter bank lending standards.”
Goldman Forecasts US High-Grade Spreads to Tighten
The strategists reiterated their predictions from February, before bond spreads blew out amid the banking troubles. US investment-grade premiums will tighten to 117 basis points by end-June from about 133 basis points, they said. Junk bond spreads will fall to 400 basis points, the report said.
The report pointed to the Wall Street bank’s macro view that the US can likely avoid a recession over the next 12 months and expectations the Federal Reserve will pause interest-rate hikes after a quarter-basis point increase in May. This is supportive of credit, it said.
Citigroup Inc.’s global asset allocation team, though, remains underweight US investment-grade and high-yield credit, adding it’s premature to rule out the potential for a credit crunch in the US, according to an April 20 note. By contrast it’s overweight emerging-market high-yield debt, citing its tendency to outperform during periods of dollar weakness.
This article was provided by Bloomberg News.