© Reuters. In US credit the turning point is approaching, prepare to maintain the balance
AllianceBernstein in an analysis by Scott DiMaggio, Gershon M. Distenfeld and Matthew Sheridan, recommends finding the right balance between credit and interest rate risk as the final phase of the cycle approaches
In the final stages of a credit cycle, it may be appropriate to find the right balance between interest rate risk and credit risk, a particularly advisable exercise in anticipation of a turnaround towards the end of the year, when growth will start to be affected by the monetary tightening. As the probability of a recession increases, investors will want to maintain liquidity and a decent level of duration, and government bonds are a great way to do both, while exposure to “instruments” such as high yield, select corporate debt Emerging Markets and commercial mortgage-related securities can balance portfolios and enhance income potential.
CAUTION ABOUT BONDS MOST VULNERABLE TO THE RECESSION
These are the indications of AllianceBernstein in an analysis entitled “Maintaining balance during the turn of the credit cycle” signed by Scott DiMaggio, CFA | Co-Head—Fixed Income; Director—Global Fixed Income, Gershon M. Distenfeld, CFA | Co-Head—Fixed Income; Director—Credit, and Matthew Sheridan, CFA| Lead Portfolio Manager—Income Strategies. AB’s experts, with credit spreads currently below average, are particularly cautious on CCC-rated corporate bonds, which are extremely vulnerable in the event of a recession. In a situation of great uncertainty, it is best to maintain ample liquidity and be prepared for multiple contingencies, and a balanced approach to income generation serves the purpose…
** This article was written by FinanciaLounge