Markus Allenspach, Head of Fixed Income Research, Julius Baer
We see room for further spread compression in corporate and emerging market bonds, as the market focus shifts back from the Chinese epidemic to the consequences of sustained asset purchases by both the US Federal Reserve and the European Central Bank. We still recommend holding emerging market bonds, as well as BBB/BB rated corporate bonds.
Credit spreads are not yet back to the tights of early January, but we have seen a further consolidation in the bond market yesterday, supported by the Fed’s communication. In our view, the sustained printing of money, i.e. the purchasing of asset by central banks, is the main driver of the bond markets at this juncture. In a world of moderate growth and limited recession risks, the central banks’ financial repression strategy pushes investors into riskier segments of the bond market. As long as we do not detect a catalyst for a recession or a systemic crisis, it is worth investing in lower-rated debt in order to generate income.