Heading into the fourth quarter, our Global Fixed Income, Currency and Commodities team has an equal-weighted base case of recession and sub-trend growth. We investigate whether corporate fundamentals justify owning down-in-quality BBB-rated bonds for investors in investment grade credit.

What does this mean for fixed income investors?

We are selectively adding risk to our portfolios where we see attractive opportunities for spread and carry. We are also leaving room, should we see pricing and spreads consistent with the recession scenario. Corporate spreads should move wider in a recession, whereas in a soft landing scenario, spreads are likely to be better behaved. We maintain an overweight to the lower-quality BBB part of the IG credit universe vs. the benchmark, however, selection is key in this part of the economic cycle.  

About the Bond Bulletin

Each week J.P. Morgan Asset Management's Global Fixed Income, Currency and Commodities group reviews key issues for bond investors through the lens of its common Fundamental, Quantitative Valuation and Technical (FQT) research framework.

Our common research language based on Fundamental, Quantitative Valuation and Technical analysis provides a framework for comparing research across fixed income sectors and allows for the global integration of investment ideas.

 

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