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Corporate defaults: unpacking the underlying stress and implications for markets

Fixed income

23 Aug 2023

Kylie-Anne Richards of Fortlake Asset Management discusses the beginning of corporate defaults and the potential implications for market volatility.

Kylie-Anne describes current credit markets as resilient with stable spreads and managed volatility. She however, cautions that potential market disruptions aren't adequately reflected in pricing due to imminent refinancing periods and escalating capital costs. To Kylie-Anne, this mispricing might be caused by market inefficiencies or optimistic assumptions of natural improvement in these conditions. She anticipates an increased strain on private credit markets that may eventually ripple into fixed income markets.

Kylie-Anne says investors should remain cautious but points out the potential opportunities within high volatility conditions, recommending long vowel strategies as a defensive approach. Furthermore, Kylie interprets the recent surge in 30-year US Treasury yield as a result of this heightened market volatility. She urges investors to explore opportunities within government bonds considering the risk-reward balance.

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