Welcome to Thoughts on the Market.
I am Vishy Tripatore, Morgan Stanley's chief fixed income strategist.
Today I'll talk about why credit markets have been resilient even as other markets have been volatile and market implications going forward.
It's Tuesday, March 18th at 11am in New York.
Market sentiment has shifted quickly from post-election euphoria and animal spirits to increasingly growing concern about downside risks to the US economy,
driven by ongoing policy uncertainty and a state of uninspiring soft data.
However, signaling from different markets has not been uniform.
For example, after reaching an all-time high just a few weeks ago,
the S&P 500 index has given up all of its gains since the election and then some.
Treasury yields have also yoyoed from a 40 basis point sell-off to a 60 plus basis point rally.
Yet in the middle of this volatility in equities and rates, credit markets have barely budged.
In other words, credit has been a low beta asset class so far.
This resilience which resonates with our long-standing constructive view on credit has strong underpinnings.
We're expected that many of the supporting factors from 2024 would continue, such as solid credit fundamentals,
strong investor demand driven by elevated overall yields rather than the level of spreads.
While we expected the economic growth in 2025 to slow somewhat to about 2%,
we thought that would be still a robust level for credit investors.
These expectations have largely played out until recently.
While we maintain our overall positive stance on credit,
some of the factors contributing to its resilience are changing,