Why USD credit can have the best summer yet – Goldman Sachs

Bridget Bartlett, Research Analyst at Goldman Sachs, suggests that the search for quality pushed rates to ultra-low levels setting up for a potentially stronger search-for-yield comeback in 3Q, benefiting USD credit for three reasons.

Key Quotes

“First, USD credit still offers the most attractive carry within the global fixed income sphere especially as nearly half of the EUR bond market trades with a negative yield.

Second, valuations are compelling with elevated credit spreads allowing room for further compression.

Lastly, mutual funds will likely furnish incremental demand, especially for higher yielding bonds in an effort to play catch up after a significant underperformance through 2Q.

Overall, the post-Brexit regime with depressed yields and elevated credit spreads provides a robust tailwind for USD credit. The key risk to our view is an escalation of systemic concerns, originating within the EUR banking system.”