CFA Society Chicago
Investment Exchange Forum - 2025 Investment Themes - Fixed Income
Mar 3, 2025
Elizabeth Henderson, CFA, Head of Fixed Income at AAM, and Anthony Woodside, CFA, Head of Investment Strategy at LGIM America, delve into the evolving landscape of credit markets. They discuss how tighter credit spreads may reshape risk-return scenarios and the Federal Reserve's influence on investor behavior. Insights on government policy's impact on sectors like clean energy, the implications of tariffs on inflation, and labor market dynamics present a comprehensive view of the fixed income environment as we approach 2025.
38:18
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Quick takeaways
- Current tight credit spreads reflect strong fundamentals, yet potential rate stability may pose risks for future credit market health.
- Shifts in government policy can significantly impact credit markets, creating challenges particularly for sectors reliant on government funding.
Deep dives
Strength of Credit Markets
Credit markets are experiencing tight spreads, with investment-grade credit spreads around 73 basis points and high-yield spreads at 260 basis points, indicating strong underlying fundamentals. This situation contrasts sharply with the post-GFC period characterized by low growth and inflation, leading to suppressed fixed income investment excitement. The recent cycle, marked by the fastest interest rate hikes in over 40 years, has resulted in attractive yields, showcasing bonds as a valuable asset allocation tool again. This combination of improved credit fundamentals and heightened investor demand for yields has kept risk premiums compressed, securing the strength of credit markets.
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