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Fixed Income
Focus on investment grade fixed income fundamentals
Peter Becker
Investment Director
Flavio Carpenzano
Investment Director

The outlook for investment grade (IG) credit is centred around the interplay between the macroeconomic environment and valuations. Yields are still high, meaning IG investors can earn a good level of carry, which helps to mitigate against periods of volatility.


If the economy enters recession and central banks begin easing policy, credit fundamentals will likely weaken from their current high level. However, in this environment, investors could benefit from both the high carry they have locked in and the positive duration impact of falling rates. In many cases, this could offset the negative effect of a widening of credit spreads on returns.


In the near term credit spreads are tight with the potential for some further spread widening, which suggests a cautious approach is appropriate. We think it is important for investors to remain flexible and use security selection to identify opportunities across the fixed income spectrum. Central to such an approach is having a comprehensive understanding of a company’s underlying fundamentals.


In this paper we take a closer look at some of the key fundamentals of investment grade companies including leverage, maturity profiles and interest coverage ratios. Slower economic growth and higher interest costs will lead to a deterioration in these measures. However, we note that this will be happening at a time when company balance sheets are strong and credit metrics high. 



Peter Becker is an investment director at Capital Group. He has 27 years of industry experience and has been with Capital Group for five years. Prior to joining Capital, Peter was a managing director in the fixed income product management team at Wellington Management. Before that, he was a portfolio manager at Aberdeen Asset Management. He holds a master's degree from The Ingolstadt School of Management. He also holds the Chartered Financial Analyst® designation. Peter is based in London.

Flavio Carpenzano is an investment director at Capital Group. He has 19 years of industry experience and has been with Capital Group for three years. Prior to joining Capital, Flavio worked as a fixed income senior investment strategist at AllianceBernstein. Before that, he was a product manager at PIMCO focussed on credit strategies. His early career also includes a role at the Bank of England as an analyst in the markets department. He holds a master's degree in finance and economics from Università Bocconi. Flavio is based in London.


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