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The Ratio of People to Cake Is Too Big

The Case for New Lows in Investment Grade Spreads

Ryan Jungk, Investment Grade Corporate Sector Manager, discusses why he believes the rally in investment grade spreads may not be over and may be on the path to set new record lows.

Key Points

  • Investment grade credit still offers more than adequate compensation for average defaults and downgrade experiences.
  • The technical outlook is increasingly favorable with expected lower future supply and rising demand from foreign investors who have been attracted by lower hedging costs and higher relative yields.
  • The Fed’s intervention has both reduced credit risk and introduced a large buyer to the market.
  • Though unknowns still abound, the combination of the above could cause the rally to overshoot investors’ expectations.

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