All the Credit

Quantitative tightening (QT), the unwinding of the large scale of purchases of a broad range of financial assets by central banks, has become a feature of monetary policy since the great financial crisis. Though central banks around the world have already started this process, given the many distractors in the market, such as the global banking crisis and the U.S. debt ceiling brinkmanship, QT has gone on somewhat unnoticed. That said, as we near the end of hiking cycles and the paths of short-term interest rates become clearer, we expect markets to shift their focus to QT. Exactly how do central banks intend to unwind their bloated balance sheets? PGIM Fixed Income’s Katharine Neiss, PhD, Deputy Head of Global Economics and Chief European Economist, and Bethany Payne, CFA, Developed Market Rates Portfolio Manager, join this episode of All the Credit® to help us better understand QT and explore its potential market and economic impacts. First, we’ll take a look at quantitative easing (QE), the process by which central banks expand their balance sheets by buying up financial assets on a massive scale, why they do this, and how this tool fits into their policy options to help achieve their price stability mandates. Then we’ll look at the reasons why central banks are so motivated to unwind their balance sheets and reverse QE, the constraints they face, and the potential risks to financial markets. We’ll wrap up with some thoughts on how successful we think QE and QT have been thus far and if central banks will be able to turn to these tools as readily in the future. Michael Roper, CFA, European Investment Grade Corporate Bond Portfolio Manager, returns to All the Credit® as host, alongside Mike Collins, CFA, Senior Portfolio Manager for Multi-Sector Strategies. Recorded on June 9, 2023.

Just a few months ago, the market was confident that post global financial crisis, financial sector reforms, and regulatory scrutiny ensured that the U.S. banking system was rock solid, and that the next cycle's culprit would emanate from elsewhere. However, banking is once again front and center as investors weigh systematic risks from another prospective real estate crunch—this time in the commercial property sector. In this episode of PGIM Fixed Income’s All the Credit®, with guests Jason Pan, CFA, FSA, Securitized Products Credit Research Analyst, and David Jiang, U.S. Investment Grade Credit Research Analyst, we’ll outline the scale of the potential problem, including the cadence of decay and potential flashpoints in commercial real estate, and discuss potential transmission through the banking system, extension of credit, and the real economy. Brian Barnhurst, CFA, Co-Head of Credit Research, returns to All the Credit® as host, alongside Mike Collins, CFA, Senior Portfolio Manager. Recorded on June 9, 2023.

With “x-date” looming, concerns about a potential default are weighing on financial markets and the global economy. As the nation’s solvency hangs in the balance, Daleep Singh, PGIM Fixed Income’s Chief Global Economist and Head of Macroeconomic Research, joins this episode of All the Credit® to discuss this U.S. government fiscal fiasco. To begin, Daleep lays the groundwork with a brief history of the U.S. debt ceiling, including some of the recent impasses that may act as a guide for the current situation. Daleep then provides his take on the potential outcomes of this debt debacle with estimates on the probabilities of each outcome. Our discussion wraps up with considerations on the most likely path forward for the U.S. government, and the economic, market, and investment implications that investors should watch for. Alyssa Davis, U.S. Investment Grade Corporate Bond Portfolio Manager, cohosts this episode. Recorded on May 8, 2023. 

After years of strict COVID lockdowns, China’s domestic consumer economy is rapidly re-opening. Meanwhile, global manufacturing—normally an area of Chinese dominance—is being challenged by tighter credit conditions after years of progressive central bank hawkishness. In addition, the country still finds itself in the global geopolitical crosshairs as highly restrictive policies against China remain. In this episode of All the Creditâ, PGIM Fixed Income’s Gerwin Bell, PhD, Lead Economist for Asia, discusses China’s re-opening and how it could be different from recoveries from past decades. Gerwin also provides his 2023 GDP and inflation forecasts for China, assesses the country's policy initiatives and what they could mean for its interest rates and currency, and shares his long-term growth outlook. Michael Roper, CFA, European Investment Grade Corporate Bond Portfolio Manager, joins as co-host for this timely discussion. Recorded on April 24, 2023.

Recent global banking failures shook investors and markets alike, leaving many wondering if we’re witnessing a repeat of the 2008 global financial crisis. In this episode of All the Credit®, Mick Meyler, Head of Developed Market Rates, and David Jiang, U.S. Investment Grade Credit Research Analyst, review the events of this latest crisis, discuss the potential for more bank runs, outline potential regulatory responses, and assess the impacts on bank earnings and credit fundamentals. The duo also unpacks the recent swings in interest rates and central bank policy expectations, attempts to measure the impact of now-tighter credit conditions, and more. Lindsay Rosner, CFA, Multi-Sector Portfolio Manager, joins this episode as a special co-host and provides a summary of our portfolio positioning, particularly in the financial sector, while also accounting for heightened recession risk. Recorded on March 24, 2023.

Brian Barnhurst, Co-Head of Credit Research at PGIM Fixed Income, and Gary Horbacz, Head of Securitized Products Research, delve into the current credit landscape. They discuss the growing concerns over borrower credit quality amid rising interest rates and economic pressures. The conversation covers the struggles in corporate credit and commercial real estate due to inflation and shifting work trends. Insights on consumer defaults reveal the resilience of certain job sectors, while also addressing the changing dynamics in lending practices.

The residential real estate market directly or indirectly impacts everyone. After all, everyone is born short a house. Home prices and construction activity also largely impact economic growth, wealth, inflation, and, for fixed income investors, residential mortgage-backed securities (RMBS). With the market suddenly in a downturn, should investors be prepared for lower house prices and rents? Declines in home construction and sales? Increased delinquencies and defaults on mortgages? In this episode of All the Credit®, Kaustub Samant, Head of Mortgage Credit Research at PGIM Fixed Income, reviews the current state of the residential real estate market, along with the recent history of home price appreciation (HPA) and changes in rental rates. Mr. Samant examines trends in the market and affordability issues, and the looming decline of residential prices and rents. We also discuss implications for GDP and inflation, mortgage default vulnerabilities, and shifts we’ve made within the capital structure in lieu of changes in the market for mortgage-related fixed income securities. Recorded on January 12, 2023.

Earlier this year, PGIM Fixed Income developed an inflation indicator tool that uses various economic variables to segregate the supply factors that explain the change in inflation, from those associated with demand. The end result helps us gain insight into the future direction of core goods inflation. On this episode of All the Credit®, Guillermo Felices, PhD, Global Investment Strategist, explains our proprietary inflation model and reviews the findings. Guillermo also: provides an update on the direction and level of inflation that we’re expecting over the next year; delves into the policy implications and highlights the macroeconomic scenarios we envision for 2023; and shares our views on the level of interest rates in each of these potential scenarios. Recorded on December 9, 2022.

For the first time in decades, long-term interest rates have broken out of their steady downtrend with recent spikes. Is this a temporary irregularity? Or has the rate environment reverted to a paradigm of sustained higher yields and returns from bonds? In this episode, Robert Tipp, CFA, examines how we arrived at “low for long,” and why it’s given way to generational highs in growth, inflation, and interest rates, creating a strategic buying opportunity in fixed income. Robert also provides his thoughts on potential interest rate paths and soft versus hard landing possibilities in 2023. Recorded on November 17, 2022.

On this special edition of All the Credit®, Mike Collins hands the mic to PGIM Fixed Income’s Co-Chief Investment Officer, Greg Peters, and newly appointed Chief Global Economist, Daleep Singh, to discuss: the current macro backdrop; central bank policy and response; impacts to the fixed income market; possible macro scenarios heading into 2023 and trends we’re watching; opportunities in fixed income; and how our investment process aims to help our clients thrive through this period of heightened risk and uncertainty. Recorded on October 12, 2022.