Decent credit fundamentals – enough to buffer frontloaded rate hikes?

Weekly Comment | Fixed Income

The Fed is under significant pressure and it is becoming increasingly likely that they will hike in 50bps-steps for the next 3-4 consecutive meetings to reach the “neutral rate” as soon as September. Several Fed members have emphasized a reassessment once the “neutral rate” has been reached.

Credit Spreads have widened as the technical picture continues to weaken and supply has not even started. However, we acknowledge the fact that credit fundamentals look (very) benign. While they may deteriorate moderately throughout 2022 we are convinced that fundamentals continue to support the credit market and act as a “safety net” during the current anti- goldilocks trend.

Given the generically low interest rate duration the Cape Fixed Income Fund is well equipped to perform well relative to most major fixed income segments. We remain on the cautious side and continue to maintain a higher-than-average cash balance but we reckon there is a decent portion of pessimism in terms of slowing growth and hawkish CBs already priced in.

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