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Corporate credit: Search for yield to remain strong - Goldman Sachs

FXStreet (Łódź) - The Goldman Sachs team of analysts expect the search for yield to remain strong in the face of the very accommodative monetary policy, strengthening growth, low inflation and less macro risks than in the last couple of years.

Key quotes

"This view has been strengthened by the ECB actions."

"We expect spreads to narrow further from here. This leaves spread returns attractive, in our view. But, from a total return perspective, the rise in the underlying government bond yield is likely to result in losses for IG credit and we remain underweight."

"We still see corporate re-leveraging as the largest risk to credit quality."

"Within credit, we prefer Europe over the US in the near term on technical demand related to the ECB policies, but over a longer horizon we think US credit looks better on a fundamental basis as the compensation investors receive for the structural risks related to the Euro area is small."

"We prefer financials over non-financials in both regions."

"We expect financial spreads to reach the level of non-financials this year in the US, while this process is likely to be slower in Europe."

"The re-leveraging risk is concentrated in the non-financial segment and regulatory changes should lower risk in financials."

"Thematically, we expect cyclical sectors to outperform and still think liquidity premia are worth pursuing."

"Specifically we recommend seeking extra spread in off-the-run bonds, small issues and bonds in smaller capital structures."

"On a total return basis we prefer HY over IG, as the carry return in HY is high enough to more than offset the pressure on returns from rising bond yields."

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