The OMFIF Podcast
Risks and opportunities for investment grade credit in 2025
Dec 10, 2024
Flavio Carpenzano, Fixed Income Investment Director at Capital Group, dives into the intricacies of the investment-grade credit market. He highlights the record $1.4 trillion issuance in 2024 and discusses how credit spreads are compressing amid high demand. The conversation also covers the differing dynamics of the U.S. and European markets, the impact of geopolitical risks, and future opportunities as easing monetary policies take effect. Expect insights on navigating potential volatility and strategic security selection in this evolving landscape.
27:52
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Quick takeaways
- The U.S. investment-grade corporate bond market demonstrated strong resilience in 2024 with unprecedented issuance despite macroeconomic volatility, achieving demand that outstripped supply.
- European credit markets face risks from political uncertainties and geopolitical tensions, yet opportunities remain through security selection in stable sectors like banks and pharmaceuticals.
Deep dives
Record Issuance and Market Resilience
The investment-grade corporate bond market has experienced unprecedented levels of issuance in 2024, with the U.S. market alone generating approximately $1.4 trillion in bonds. This figure represents a 16% increase over the previous record year, demonstrating strong demand from institutional investors, especially pension funds seeking long-dated bonds. Despite the surge in supply, credit spreads have continued to compress, reflecting robust market performance characterized by elevated yields of around 5% to 5.5%. This situation highlights the market's resilience in the face of macroeconomic volatility, suggesting that overall demand exceeded supply due to the attractive income levels offered by high-quality assets.
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