Fixed-income had a great start to the year with EUR and USD investment-grade credit returning 2.1% and 3.5% respectively in January. Historically high all-in yields, an improving macro picture, falling inflation and the end of the global hiking cycle in sight offered an attractive investment proposition for the asset class.
The question is now where do we go from here? This will largely depend on whether growth can hold up as expected while inflation continues to fall towards the central banks’ magical 2% target. While the latest data supports that, the soft-landing scenario remains a dif-ficult path to achieve as inflation has historically never fallen that fast outside of a recession. Moreover, the US is starting to show the first cracks that could deepen,the longer the Fed keeps interest rates elevated. While the European economy seems to be improving, the macro fundamentals still look shaky and might not be able to hold should US growth falter.