“We suspect an opportunity will likely present itself in the medium term to take a more positive view on IG credit spreads and increase our allocations accordingly,” he noted.
The rush to get deals done in recent months has in large part been driven by expectations that the Federal Reserve will raise interest rates by the end of the year, thereby making deal financing more costly, Habibi said.
The pace at which the Fed implements its rate hiking cycle will be a key determinant of how good the opportunity in investment grade bonds is over the medium term, he added.
If the pace is slow as is widely forecast Habibi expects markets to react positively and the new issue calendar to experience only a brief pause before resuming at pace.
Such a scenario would be postive for investment grade spreads in Habibi’s view.
