Goldman Sachs Exchanges
Are credit investors nervous about recession risk?
Mar 18, 2025
Lotfi Karoui, Chief Credit Strategist at Goldman Sachs, joins to unravel the latest shifts in the credit markets. He discusses the rising yields on corporate bonds and what that signals for economic outlook. Karoui explores opportunities within global credit markets amid recession fears, contrasting the performance of US and European markets. He also highlights the resilience of agency mortgages, their appealing valuations, and the minimal risks during economic fluctuations—making them an intriguing investment choice.
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Quick takeaways
- The widening corporate bond spreads indicate that investors are increasingly nervous about recession risks amid a volatile macroeconomic environment.
- Focusing on higher-quality assets like agency mortgages is advised for better resilience and stable income during potential economic slowdowns.
Deep dives
Rising Corporate Bond Spreads and Market Perception
Recently, corporate bond spreads in the U.S. have widened significantly, indicating an increase in the risk premium required by investors. This change coincides with a perception that corporate credit is resilient, but in reality, the widening of spreads aligns with preceding declines in equity markets. The starting levels were tight, leading to an optical illusion of strength, whereas the reality reflects a necessary adjustment to a more volatile macroeconomic environment. As such, investors may need to brace for further increases in risk premiums as markets recalibrate to reflect the current economic landscape.
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