Global Credit Weekly

Potential for tension in the dual mandate

April 17, 2025 | Amanda Lynam, Dominique Bly

Key takeaways

  • Federal Reserve Chair Jerome Powell’s remarks at the Economic Club of Chicago were, in our view, consistent with a more constrained reaction function. Most notable, from our perspective, was Chair Powell’s acknowledgement of the risk of potential tension to its dual mandate goals of price stability and maximum employment. This echoed similar comments from Cleveland Fed President Beth Hammack this week.
  • In our view, despite the growing downside risks to economic activity, the Fed is unlikely to cut rates preemptively. Rather, evidence of material deterioration in the labor market would likely be required before the Fed delivers additional policy normalization (beyond the 100bp of rate cuts enacted since September 2024). While uncertainty is especially elevated, we continue to view a rate cut in 1H2025 as unlikely.
  • Given the recent volatility, in this Global Credit Weekly we take stock of the performance of IG and HY credit spreads across the USD and EUR markets. Among the most visible patterns is the theme of EUR credit spread outperformance, relative to its USD peer – in both the IG and HY markets. Sector dispersion is also evident, most notably the underperformance of cyclical sectors such as Energy, Airlines, Autos, Lodging/Leisure and a range of consumer-facing industries. As we outlined last week, we remain comfortable selectively moving down in credit quality within the corporate credit market (to the low-end of IG, and the high-end of HY rating categories).
  • While credit spreads have materially repriced from the local tights of mid-February, they remain below the post-financial crisis average levels. Said another way, credit valuations are not reflecting material concerns regarding a sharp downturn in growth. Given the elevated policy uncertainty, we see scope for some additional spread widening from current levels. As Exhibit 1 illustrates, analyst earnings estimates have inflected lower over the past week – and we see additional scope for this pattern to extend, to reflect a more challenging growth-inflation mix.

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Authors

Amanda Lynam, CPA
Head of Macro Credit Research, Portfolio Management Group
Amanda Lynam, CPA, is Head of Macro Credit Research within the Portfolio Management Group. In this capacity, Amanda leads a team that generates differentiated investment strategy research across global fixed income, liquid corporate credit (IG, HY, leveraged loans) and alternative asset (private credit, real estate) markets.
Dominique Bly
Macro Credit Research Strategist, Portfolio Management Group
Dominique is a Macro Credit Research Strategist. Prior to joining BlackRock, Dominique was an Investor Relations professional at Neuberger Berman, specializing in Private Debt, and a Consultant at Accenture. Dominique received a Bachelor of Science in Business Administration from UC Berkeley Haas.

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