Fixed Income
Investment grade outlook - security selection may be key to managing uncertainty
Damir Bettini
Portfolio Manager

• Investment grade credit is now priced for central banks to achieve the perfect soft landing – a feat they have never achieved before. Despite the market’s conviction, the macro-economic outlook remains uncertain.

• Dispersion has increased within investment grade and will likely rise further as the macro-economic environment evolves.

• Among the sectors where we continue to find opportunities are banks, utilities and technology companies.

We recently sat down with Damir Bettini, Principal Investment officer of the Capital Group Global Corporate Bond strategy to discuss the outlook for the investment grade bond market and where he is finding opportunities.

Damir discussed how the current environment provides an opportunity for long-term investors to lock in total returns, but there remain uncertainties that could increase volatility in the short term. He emphasised that security selection and thorough, in-depth, bottom-up fundamental research will be key to capturing opportunities as we move into an environment where increased financing costs will likely cause some business models to struggle and credit quality to deteriorate.

He highlighted the shift in market sentiment that has occurred since October 2022 and how the subsequent rally means that the Investment grade bond market is now priced for perfection. Current spread levels, he observed, are consistent with central banks achieving the perfect soft landing - a feat that they have never managed before.

Despite the market’s conviction, Damir believes that the economic outlook remains highly uncertain. He would like to see credit spreads around 175 to 200bps, which would take them to a level that starts to reflect the risk of recession before he would be comfortable adding risk.

An important development in the Investment grade market over the past year has been an increase in dispersion. Damir discusses this development and why for active managers like Capital Group, it can provide investment opportunities. He also talks about areas of the market where he is finding opportunities namely, banks, utility and technology companies.

Damir Bettini is a fixed income portfolio manager at Capital Group. He also serves on the Fixed Income Management Committee. He has 15 years of investment experience, all with Capital Group. Earlier in his career at Capital, as a fixed income investment analyst, he covered European banks, insurance and telecoms. Prior to joining Capital, Damir was a senior director and the global head of insurance criteria with Fitch Ratings. Before that, he was a senior insurance equities analyst with Bank of America and a director and lead analyst with Standard & Poor’s Insurance Ratings. He holds a bachelor’s degree in aeronautical engineering from Queen Mary and Westfield College, University of London. Damir is based in London.

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