Fixed income

Credit opportunities beyond the short term

September 30, 2024 - 2 min read

How has 2024 shaped the credit landscape?

As of early September, 2024 has been an interesting year for fixed income investments, and especially for Euro Credit. The yield offered by the asset class has attracted record amount of inflows, which has been a real boon for the credit market and has allowed spreads to compress within the investment grade universe. Expectations of lower interest rates supported by weaker macroeconomic data, and inflation which seems to be under control, have further boosted the absolute performance of the asset class.

Are you concerned about the prospect of recession?

At Ostrum Asset Management we don't expect a recession in the United States or in Europe. The economy has begun to slow down but our scenario is a soft landing. In addition, the corporate environment is still favorable. Corporate margins are still high, and we believe the default rates should remain around 3.5%. Well below their historical average.

Where are you currently seeing opportunities?

Inflation may have fallen, but is still persistent on both sides of the Atlantic. This should lead central banks to lower their rates more gradually than the market is expecting. This situation will likely result in a steepening of the yield and credit curves. As we expect short-term yields to mechanically fall, investors may face the risk of reinvestment at lower levels. This reinforces the attractiveness of the long end of the curves, which offers opportunities to seize additional yield and allows to implement a carry roll down strategy. We believe Euro investment grade will continue to offer attractive yields and the opportunity of an additional performance if rates decrease following the compression seen in 2024. We are currently focusing on the best rating categories, the financial sector, and the five-to-seven-year part of the credit curve.

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