1. Credit Overshoot?
2. Time to take the other side of the “broadening” trade?
3. Geopolitics vs. Macro in EM fx
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1. Credit Overshoot?
Risky assets beware - relative to macro conditions, US HY spreads look too tight.
US High Yield spreads have pushed to almost 1 sigma through Qi macro fair value. Qi model confidence is high (91%) and been remarkable stable ever since last April’s Liberation Day.
Qi model value has also been stable of late. Macro-warranted fair value has been around the 315bp level for around 3 months now and does not “justify” the recent leg tighter.
Credit technicals may remain supportive but macro fundamentals suggest poor risk-reward down here. With tight credit spreads underpinning easy financial conditions, equity risks rise if HY blinks.
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