A gauge of corporate credit risk fell the most in two weeks as encouraging economic data fuels fresh bets that the Federal Reserve will engineer a soft economic landing.
(Bloomberg) — A gauge of corporate credit risk fell the most in two weeks as encouraging economic data fuels fresh bets that the Federal Reserve will engineer a soft economic landing.
The spread on the Markit CDX North American Investment Grade Index, which tightens as credit risk declines, declined as much as 2.44 basis points to 62.517, the most since July 12. The index reversed its widening Thursday after a report that the Bank of Japan finally appears to be preparing for an end to its controversial yield curve control program.
Friday’s data release showed that employment costs rose by just 1% in the second quarter, the slowest advance since 2021.
The decline in the cost of credit proection “is a signal that global growth is stabilizing,” said Scott Kimball, managing director at Loop Capital Asset Management. “But I think it’s the softening US inflation picture that credit markets are most strongly reacting toward; the case for a ‘soft landing’ keeps increasing.”
With gas prices creeping higher and base effects waning, Brian Kennedy, portfolio manager at Loomis Sayles, warns against complacency.
“There’s still a need for caution as afar as inflation is concerned,” he said.
–With assistance from Sri Taylor.
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