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Credit outlook: Beauty in the AI of the bondholder?
AI enthusiasm is adding real momentum to credit, though shifting technicals and tight spreads mean a thoughtful approach is essential. In our latest outlook, we outline our views on the economy, credit markets and the key themes shaping the year ahead.
Authors
Matthew Jackson
CIO High Yield, Portfolio Manager
Top keywords
Summary
- The fundamental backdrop appears supportive for risk assets, including credit
- Technicals have been exceptionally strong but this is changing
- Spread valuations remain far from cheap and offer limited cushion
This last year will generally be remembered as a kind but chaotic one for investors. Major equity markets have delivered double-digit gains, credit markets are enjoying positive excess returns and gold bugs have been handsomely rewarded. Holders of long-dated European government bonds, the US dollar, oil longs and, more recently, crypto bulls might feel a little differently.
This might be as good as it gets for technicals
Financial markets have seemingly been nervous about ‘something’ for the entirety of 2025. But prior concerns such as tariffs, unsustainable deficits and geopolitics have somewhat faded into the background for now, only to be replaced with new ones: the artificial intelligence (AI) boom and private credit ‘cockroaches’. We suspect these topics are likely to dominate conversation for the foreseeable future. We believe the rest should be considered dormant and not extinct.
Given tight starting valuations, the resilience of credit this year has been particularly impressive in the face of so much noise. One supportive factor has clearly been widescale global monetary policy easing over the past twelve months. This will continue, but the path forward for the US Federal Reserve (Fed) especially will be a key focus for markets.
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