While US corporate credit spreads are now close to their pre-pandemic levels, economists at Capital Economics think that they will fall further in general as the global economy recovers with the help of vaccines.
Key quotes
“Despite coronavirus spreading through major economies again and restrictions on activity being reimposed, credit spreads have dropped a lot more since then. And we think that they will fall further still as the introduction of effective vaccines has improved the prospects for the economy and risky assets.”
“The upshot is that we think that corporate bonds will typically make further gains over the next couple of years, against the backdrop of a further recover in the global economy; exceptionally loose monetary policy around much of the world; direct purchases by central banks; and a continued hunt for yield.”
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