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Can rate hikes create opportunities for credit investors?
Victoria Quach
Senior Client Analytics Manager

 


Many investors are bracing for volatility in the credit markets as the Fed launches its first rate hike cycle in six years. For active credit investors, however, impending hikes can create opportunities. In a new white paper, Capital Group senior retirement strategist Chris Anast and senior client analytics manager Victoria Quach study how credit markets have reacted during past tightening cycles. 

Key takeaways:

  • Preceding rate hikes, credit spreads typically widen amid investor uncertainty and reduced risk appetite.

  • In the months following an initial hike, spreads generally compress as investors interpret tighter policy as a positive signal about the economy.

  • The magnitude of these spread movements has varied based on credit quality and maturity/duration — leading to a dispersion in results.

  • This dispersion can create opportunities for skilled active managers to add value through security selection.

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Victoria Quach is a senior client analytics manager with 14 years of industry experience (as of 12/31/21). She holds a master’s degree in financial engineering from the UCLA Anderson School of Management and a bachelor’s degree in mathematics and applied science from the University of California, Los Angeles.

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