Macro Perspective

After a turbulent start to the year, global credit markets closed out 2019 on a strong note. Our controversial view early on was that global growth would prove to be resilient and that central bank monetary policy, led by the Fed and ECB, would have to turn much more accommodative to support their respective recoveries. Ultimately, the combination of both of these themes broadly playing out, together with receding fears over Brexit and US-China trade tensions, led to a sharp outperformance of spread sectors globally.

For 2020, we expect global growth to remain resilient on the back of steady US growth, improving domestic conditions in the eurozone and an acceleration in emerging market (EM) growth momentum. Sustained monetary policy accommodation by the Fed and ECB intended to truncate downside growth risks and engineer a pick-up in inflation momentum, combined with receding fears over Brexit and US-China trade tensions, should serve to buoy global financial market sentiment, especially in a period of mounting geopolitical risk. Ultimately, a benign global macro backdrop is favorable for spread sectors and suggests further outperformance versus developed market (DM) government bonds as we move further into the New Year. Admittedly, given 2019’s substantial rally, the lower starting point for both US rates and credit spreads, and new risks on the horizon—specifically, the potential for heightened market volatility on any escalation in Middle East hostilities and as we move closer to the US presidential election in November—we think our overweight positions need to be more modest.

Global Corporate Credit Sector Views