Old and New Risks Test Faith in Market Valuations

CIO Perspective

So far, tariff-related headwinds have failed to durably dent the march higher in market valuations. For example, the spread of the Bloomberg US Credit Index recently reached 68 bps, the tightest level since 1997.¹ Our rigorous focus on fundamentals compels us to examine whether current bond spreads fully reflect all the risks that exist in the economy and the financial system (inflation, consumer resiliency, private credit lending).

Also in today’s newsletter:

• Employment Infographic: We take a closer look at the unique low hiring, low firing aspect of today’s labor downturn.
• Investment Grade: Credit remains supported by strong technicals and macro fundamentals, but tight spreads prompted a shift toward higher-quality assets and flexible positioning.
• High Yield: During yet another positive quarter, the strategy reduced overall portfolio risk by adding exposure to tighter spread buckets. Other investment moves included adding M&A beneficiaries and shorter maturity (’28-’30) bonds at prices modestly below par that we expect could be refinanced early.
• Commercial Real Estate: CRE debt investing looks increasingly attractive as rate cuts, fewer negative headlines and improving visibility across property types support renewed capital interest. Read more to see how each property type is dealing with its own supply and demand indicators.