Asset Allocation

Elon Musk’s SpaceX has given markets a rare opportunity to test risk appetite across credit and equity in recent days, having followed its blockbuster initial public offering (IPO) with a bond market debut.

Earlier this month, we wrote about the high cost of staying in cash in the Euro market. In that note, we argued that a combination of inflation, low front-end rates and steeper curves, favoured a rotation out of cash and cash like instruments into other alternatives that delivered better real returns, including credit. Building on this argument, we wanted to extend this perspective to the US dollar market and highlight a few key points.

From a US high yield (HY) perspective, the month of May turned out to be one of note – for the first time since December 2022, no US HY defaults were recorded, with not one instance of a bankruptcy filing or a missed interest/principal payment.

The most important asset allocation decisions for global investors ought to originate by answering a seemingly simple question: Where in the cycle are we?