Credit markets have rallied significantly over the past few years, with spreads over Treasuries in the U.S., for example, dwindling to very tight levels alongside decreasing yields. At the same time, many investors have raised concerns over credit market volatility, liquidity, potential overvaluation, and vulnerability within certain sectors. Overall, we believe the trends in global markets call for a cautious approach to generic corporate credit beta.
A defensive approach is not synonymous with avoiding the credit sector in its entirety, however. Alongside these pockets of weakness come pockets of opportunity for active managers who focus