FICC Focus Trade War Easing, Wide Spreads Aid Credit Outlook: Credit Crunch
May 14, 2025
Amir Fergani, Head of Credit LDI at Generali Asset Management, brings his expertise on the easing trade war and its impact on credit markets. He discusses the effects of rising government spending in Germany and the political dynamics in France, questioning if this recovery will last. The conversation shifts to inflation trends, fueled by improved US-Europe trade relations, and potential ECB rate cuts. Fergani shares insights on investment strategies favoring fixed income over equities, emphasizing selective approaches in navigating the current credit landscape.
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Germany's Spending Surge Risks
- Germany plans a significant spending boost, removing defense investment from borrowing caps.
- This aims to stimulate growth but risks breaching European fiscal rules amid trade tensions.
French Political Uncertainty and Debt
- French politics remain unstable with many uncertainties including potential new elections and budget challenges.
- French debt is expected to rise, but their liquid bond market stays strong with broad investor participation.
Inflation Outlook Improving
- Inflation has likely peaked due to exceptional tariff shocks and is easing, allowing room for rate cuts.
- Inflation dynamics differ by region; US and UK inflation breakevens remain higher than Europe's.