Are credit investors nervous about recession risk?

Bullish:

• $MBS - Strong conviction in owning agency mortgages relative to investment grade due to their lower sensitivity to growth fluctuations and attractive valuation.

  • “We do have strong conviction in owning agency mortgages relative to investment grade. And so that's a perfect example of a low beta asset class that is a lot less sensitive to these fluctuations or these phases of deceleration in growth.”

    Lotfi·9:32
• $TREASURIES - Long-duration Treasuries are attractive as a potential hedge against economic risks, particularly given current yield levels.

  • “Duration, look at where ten year yields are four and four and a quarter. If we have an accident in the cycle, duration can provide a very solid embedded hedge to multi asset portfolios.”

    Lotfi·2:50

Bearish:

• $CORPBONDS - Expectation of corporate bond spreads widening from current tight levels towards historical medians, though not to recession levels.

  • “We're not forecasting spreads going to recession levels. We are saying that we've had a couple quarters now where spreads were stuck at the very low end of the historical range. They should gradually go back to levels that are closer to historical medians”

    Lotfi·4:37
• $HY - Shifting view towards higher quality bonds, implying a move away from high yield in line with a cautious market outlook.

  • “We switched that view a little bit. I think if you're directionally negative on the market, you kinda have to be up in quality too.”

    Lotfi·10:46
• $EUROCREDIT - Limited scope for further tightening in European credit spreads, despite potential for relative outperformance.

  • “When I look at European credit, I think it can continue to outperform in relative terms, but I think the scope for more tightening in absolute terms is quite limited.”

    Lotfi·6:30