Rollercoaster markets are jittery at the moment, and not sure where to settle. The S&P 500 Index was down more than 2% on Monday after Trump threatened Fed Chair Jerome Powell about the need to lower rates. However, overnight, they rebounded by a little more.
The US 10-year Treasury note fell to 4.351% as US Treasury Secretary Scott Bessent reportedly noted that the US could soon ease its tariffs against China as the current levies are not sustainable. There’s a real push and pull between thoughts the US could head into recession versus a stagflation environment.
Big news this week was Macquarie’s decision to sell international public market investments (excluding Australian assets) to Nomura for $285 billion. The business oversees 50% in shares, 40% fixed income and 10% in multi asset securities. Macquarie has read the writing on the wall and judged that it’s better off in private markets.
Our lead article this week is from Darpan Harar of Ninety One Asset Management who says credit spreads have widened post Trump’s ‘Liberation Day’ tariff announcement. High yield has been hit hard, moving down from spreads in the historic 5th percentile, to a more reasonable 50th percentile. Harar says there’s still healthy dispersion between asset classes and there are specialist credit areas that stand out.
If you are interested in fixed income sub asset classes, then you’ll need to read Principal Asset Management’s Michael Goosay’s article on a policy-driven market. He summarises investment implications for six sub sectors and includes a fabulous chart showing year to date performance by sector, range of spreads and yield to worst, including current and average rates.
Fallen angels, companies that are downgraded from investment grade to sub investment grade is where analysts and investors can make money. The downgrade often requires fund managers to sell down stakes, so yields rise, offering attractive opportunities. Syed Zamil from Insight Investment provides a summary of the sector.
Chris Iggo from AXA IM is back with a warning. Financial markets are the only checks and balances on US executive power. They spoke on ‘Liberation Day’ and while concern has eased, if tariffs resurface after the 90-day pause, the reaction will be much worse.
Finally, we have an educational article explaining credit ratings. Peter Moussa from NAB Private Wealth has written an excellent guide, and well worth a read.
Enjoy another long weekend wherever you are. The weather up here in Brisbane is superb.
