In a bid to combat inflation, central banks have predominantly relied on rate hikes to increase borrowing costs, reduce investment and spending, and thus temper growth and, subsequently, inflation.

Yet, so far, growth has remained robust and inflation elevated. A significant factor in the lagging transmission has been the extensive refinancing activities during the previous ultra-low yield environment, enabling businesses and households to borrow cheaply at extended maturities while simultaneously boosting their cash reserves. As a result, the need to borrow at the current high costs has been low. With little reason to borrow, new issuance, particularly in the high yield sector, has decreased markedly, with the average maturity hitting a record low. However, as more maturities loom (“maturity wall”), more issuers might have  to refinance at the current very elevated all-in yields. Given the Fed's restrictive policy stance, marked rate reductions might only materialise after pronounced credit spread increases, which, notably, have not occurred so far. We continue to hold a net short position in credit risk, especially after the recent rate surges that could render financing unfeasible for many weaker issuers. In terms of duration, we are leaning towards a long position. While further short-term yield spikes cannot be ruled out, we believe that any emerging credit events could trigger a decline in interest rates.

This may also be of interest to you

Research Reports

Emerging-3840x2160

Emerging Markets

Perspectives Emerging Markets Annual outlook 2024

21.12.2023

Research Reports

Finanzen-3840x2160

Financial Markets

Perspectives Financial Markets annual outlook 2024

21.12.2023

Research Reports

Konjunktur-3840x2160

Economics

Perspectives Economics annual outlook 2024

21.12.2023

Research Reports

Konjunktur-3840x2160

Economics

Perspectives Economics November/December 2023

09.11.2023