US credit safe place

Evan Moskovit, lead portfolio manager global investment grade and US investment grade credit, NN Investment Partners comments on the ‘uneven and volatile market’ ahead and highlights the US as being the one ‘safe place’ for credit.

“We believe IG credit spreads will be in a range over the rest of 2016. US Credit remains an appropriate investment allocation in an uncertain low/negative yielding world.

“Sluggish growth and lack of inflation are positives for credit. Yes, world growth will slow. Uncertainty creates hesitancy which will force capital expenditure and employee additions to be postponed and knock-on effects will ensue. We don’t expect to see the early 2016 wide levels nor the tights of the prior year. A recession in the US in the near term is not expected.

“US credit remains the one “safe” place in the world for predicable positive income. This trend will only grow as non-US investors expand their geographic investment base. Call it crowding out as a result of continued central bank support which will be present for the foreseeable future.

“The ultimate effects of Brexit and potential knock-on ramifications will not be known for many years. This uncertainty is never good for financial markets and as a result, risk premiums must be adjusted higher. Pretty straightforward to expect a UK slowing of economic activity as well as various euro countries. US domestic economy will certainly feel the effects through not only a stronger dollar, but also uncertainty around upcoming elections.

“It is going to be an uneven and volatile market. Given the inability of brokers to provide market-making services, standard deviations of asset classes, including investment grade credit, will be higher than previously experienced. These gyrations will be opportunities as world demand will continue to focus on predictable income generating assets.”