Columbia Threadneedle: A supportive environment for investment grade

Columbia Threadneedle: A supportive environment for investment grade

February 4, 2020

Fixed Income Asset Management
alasdair_ross.jpg

The macro environment we face is one of low economic growth, low inflation, and loose monetary policy. That can be considered something of a sweet spot for investment grade credit. Corporate earnings are strong enough for the moderate leverage in the asset class, and investors’ search for high-quality yield supports bond prices.

Alternative macro environments could be recession or strong growth. Recession is typically a poor environment for all risk assets, albeit the lower leverage on investment grade balance sheets might see the asset class outperform higher beta risk assets. By contrast, if growth is strong and rising, superior risk-adjusted returns can be generated in growth-sensitive asset classes such as leveraged credit or equities. High growth can also result in risk-adjusted underperformance for investment grade credit if management teams become more aggressive with the balance sheet in order to capture more of that growth. 

Related posts