The expectations of imminent policy easing also prompted strong demand for both duration and risk assets, which saw very strong rallies across government bonds, credit and equities as we approached the end of the year. In the first few days of 2024, we have seen some retracement, as US data have come in hotter than expected and monetary officials have sought to downplay the chances of early rate cuts.
So, while valuations may not look quite as attractive as they did previously, we still think that the conditions for corporate bonds are favourable. There are several reasons for this, which we explore now.
1. Fundamentals are reasonable
On both sides of the Atlantic, leverage has risen from a low point in mid-2022, but doesn’t look excessive on a ten-year view, as we can see in Figure 3.