A chart from SG Cross Asset Research tracing the Fed’s rate-hike cycles since 1987 shows that the peak in its key rate most often preceded that of the junk-high-yield bond yield spread. i.e. the additional remuneration demanded by investors for holding them.
Monetary tightening is indeed felt on default rates with a time lag. This “high yield spread”, in the jargon, could rise to 950 basis points, according to these strategists.
In their view, the valuation of US small caps has already taken into account this expected increase in risk. And to play the impact of monetary policy, it is therefore better to be a buyer of protection on this credit compartment rather than a seller on this family of shares.
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2023-06-27 15:53:34
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