Dynamic primary markets hold opportunities for responsible credit
30 OCT, 2024
Stanislas de Baillencourt, Head of Asset Allocation & Fixed Income at Sycomore AM, part of Generali Investments ecosystem
We believe the peak in inflation has passed, and we are now moving towards a lower inflationary environment, which is likely to result in a soft landing with subdued global growth. This shift has provided central banks with the opportunity to start adjusting their monetary policies, offering markets more visibility. However, we think market expectations may be somewhat optimistic for rate cuts, though the overall trend towards lower cash yields from both the ECB and the Federal Reserve is clear.
While we anticipate slower growth, especially in Europe and China, this scenario remains constructive for businesses and, by extension, for credit markets. The expected reduction in interest rates has already impacted all points across the yield curve. Although yields have decreased significantly over the past three months – perhaps too sharply – we believe the longer-term outlook is supportive. In the short term, we may see some minor corrections, but overall, the environment remains attractive.
Our responsible credit strategies have benefited from these conditions over the past two years, and we are confident that the months ahead will continue to provide favourable opportunities. As a responsible investment firm, we are committed to adding value in the current market environment. We are seeing highly dynamic primary markets, with many companies refinancing their bonds. Our thorough analysis includes a strong focus on Socially Responsible Investing (SRI), ensuring alignment between companies and our strategies, particularly in the area of governance – which is key to maintaining strong credit quality and mitigating the risk of credit events.
We see responsible investment grade as a particularly rich source of opportunities, particularly those transitioning to more sustainable practices, with a focus on positive environmental impact. We continue to view crossover credit as attractive, particularly within the double-B and triple-B segments, which have been the core focus of our responsible credit strategy for over a decade.
Conclusion
In short, despite the prospect of slower growth, companies are performing well, and while default rates are likely to rise from their current all-time lows, we believe they will remain low for an extended period. This, combined with rigorous SRI analysis that further enhances risk-reward, offers a constructive environment for credit investment.
