A Resilient Asset Class Amid a Maelstrom of Macro Risks
In what can only be described as an event-packed May, financial markets navigated a minefield of global macro developments: escalating US–China trade tensions, a surge in Japanese government bond yields, and renewed concern about fiscal sustainability across developed markets. Against this tempestuous backdrop, credit markets displayed surprising resilience, delivering positive returns despite the ambient noise.
At the core of this robustness lies a simple truth: technicals continue to dominate the credit landscape. Inflows into both Investment Grade (IG) and High Yield (HY) segments have picked up again, offering evidence of persistent investor demand for income in a still yield-starved environment . Meanwhile, the European Central Bank has acted preemptively with a rate cut, but benchmark rates remain elevated, keeping the credit’s carry component structurally attractive. Across the Atlantic, the Federal Reserve has opted for strategic patience, choosing to hold policy steady.
Yet, beneath this surface-level strength lies an undercurrent of vulnerability. That vulnerability is spelled with an “F” — Fundamentals. Long overshadowed by the gravitational pull of technical drivers, fundamentals are now poised to reassert their influence, potentially marking a defining inflection point for credit markets.
