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Public Fixed Income

The Changing Face of Investment Grade Credit

January 2019 - 5 min read

In a recent interview, David Nagle, CFA, portfolio manager in the Investment Grade Fixed Income Group, discussed the investment grade credit market, including some of the issues garnering headlines recently and how the market has evolved through the years.

There’s been a lot of talk recently about the yield curve and what it might be telling us about the economy. What’s your take?

There are a number of ways to interpret the yield curve and the signals it’s sending about the economy. Personally, I would be cautious, for a couple of reasons, about reading too much into it.

Many industry veterans like myself will point to the yield curve as one of the best leading indicators of slowing economic growth or a potential looming recession. While it’s true that there has often been a historical correlation, the problem is—and I believe the academic literature will support this—that the timing of the signal from an inverted yield curve can be off, or it could even be just a coincident indicator rather than a reliable predictor of slowing growth or recession.

Also, some people are less than precise when discussing the yield curve. It’s important to define exactly what maturities you’re talking about. The 3-month/10-year curve is the one the Fed tends to focus on and the most relevant, in my view. A lot of folks today are overly focused on the very short yield curve because it’s inverted for the first time in a long while. Other curves have been approaching zero but haven’t quite gotten there yet, and as we’ve seen in the past, these curves can stay near zero for quite some time—so what’s the signal when they don’t actually invert?

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