Economics
Credit Risk Premiums to Surge to Early Pandemic Level If Fed Missteps on Policy
- Raising rates again after a pause would be a ‘disaster’: PGIM
- Soft landing is still possible and IG fundamentals are strong
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Risk premiums in the US investment-grade market could surge to 200 basis points if the Federal Reserve pauses rates too soon, according to bond investors.
“Once the Fed pauses, the market is really going to latch onto the idea that the next move is an easing,” said David Del Vecchio co-head of US investment grade corporate bonds for PGIM Fixed Income speaking at Bloomberg Intelligence’s 2023 Global Credit Outlook Thursday. “If the next move is a tightening, that’s a disaster, and that’s where we get to those 200-type spreads on credit. That’s probably the biggest risk.”