“Goldman urges caution as credit spreads fall to 2007 lows before the global financial crisisCredit strategists at Goldman Sachs Group Inc. are urging clients to hedge risks as global corporate bond yield premiums have
reached their lowest level since July 2007. This comes amid slowing economic growth and no signals from the Fed about an imminent
rate cut.
”, — write: unn.ua
DetailsRecent trade agreements between the US and its trading partners have brought clarity on tariffs, and “investors are willing to tolerate slower growth in the short term as long as recession risks remain under control,” Goldman strategists led by Lotfi Karoui wrote in a July 31 note. However, they warn against complacency.
According to the Bloomberg index, the premium on global investment-grade bonds fell to 79 basis points on Thursday, the lowest level since July 2007, just before the global financial crisis.
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Despite credit spreads narrowing and the S&P 500 reaching a record high this week, US Federal Reserve policymakers refrained from signaling a quick rate cut, indicating that the central bank still needs more data to ensure there are no inflationary risks.
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“There are enough sources of downside risks to warrant the need to hedge portfolios,” the strategists write. “Growth could unexpectedly slow,” disinflationary pressures could ease, and renewed concerns about Fed independence could trigger a sharp sell-off in long-term bonds.
According to the report, Goldman economists still expect the Fed to cut interest rates by 25 basis points in September, October, and December, and then by two more points in 2026. This week, the Fed also lowered its forecast for US economic growth, citing a slowdown in economic activity.
“It can be argued that trade policy has become much more predictable than in March and April, which has allowed markets to significantly reduce their assessment of recession risk,” they added. “While news about tariffs has become less significant factors affecting risk appetite, their impact will become increasingly significant due to intra-industry dispersion as investors begin to account for price differences across supply chains.”
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