Sponsored What does the future hold for European investment grade credit?
The US Federal Reserve has only recently followed; strong growth in the US had suggested there was no rush to cut, and the fear remains that inflation could reaccelerate if they act too soon. Real estate issuers have performed well as the path of financing costs has improved with expectations of interest rate cuts and banks have seen their spreads compress versus non-financials, so we have been reducing our exposure to issuers in both sectors. As a result, we have more liquidity in the portfolios to allow room to opportunistically buy should a significant sell-off materialise.
What could go wrong? There is a lot of uncertainty at present: inflation is steadily coming down, but if central banks have cut interest rates too early or if geopolitical events cause oil prices to rise, inflation could reaccelerate. Growth appears to be holding up and labour markets haven’t cracked, but that could still happen.