Morgan Stanley says investors should consider this port in the market storm right now

It appears that the massive selloff in the British pound, which is credited with exacerbating the global rout of markets last week, will continue to wreak havoc on Monday.

Old Blighty’s economic woes add to the list of growing concerns in the markets, which is driving more investors into the dollar and out of riskier assets like US stocks and oil.

Wall Street has a lot of concerns of its own, with many looking for the S&P 500 SPX,
-1.72%
To return to June lows sooner or later. Large institutional investors seem unwilling to take the risk, It is said spending $34.3 billion in the last four weeks of sell-off stock options, the most on record since 2009.

Morgan Stanley strategist Vishwanath Tirupator summed up how difficult it is these days in a note to clients on Sunday. “Navigating these choppy waters of the economy and markets is challenging in both risk-free and risky assets due to duration risk in the former and growth/earnings in the latter,” said the strategist.

But also offered an idea to the oversized investor, to win a place in our Today’s call. Against this background, we believe that US investment grade (IG) corporate credit bonds, particularly at the front end of the curve (1-5 year segment), provide a safer alternative with a lower downside for income-seeking investors, particularly in the back of the Much higher returns. ”

Read: After a 75 basis point rate hike by the Federal Reserve, here’s how to protect your wallet and your wallet

Tirupator offers some stats to back up his call, the first being that this is a large market, at $3 trillion in nominal terms and $2.87 trillion in market capitalization, based on the ICE-BAML Index.

At current prices, the average return is around 5% for a period of 2.64 [years] A3 / Baa1 credit quality. These levels include sharp spikes
Before the Fed signaled at this week’s meeting.”

“Of course, further increases are possible beyond market expectations. However, the relatively low duration of these bonds makes them less sensitive to progressively higher rates, and with yields of 5%, they provide a somewhat attractive carry. It is also worth noting that With only 13% of the ICE-BAML index maturing between now and the end of 2024, the maturity wall of these bonds is not particularly enforced.

“This means that the vast majority of issuers of these bonds do not have to come to the new issue market to borrow at the current high rates,” he said.

Morgan Stanley

For those worried about credit fundamentals deteriorating if the economy slows or enters a recession and the company’s earnings turn south, Tirupator says IG’s starting point is important.

After a gradual rise in the last quarter, IG’s overall average leverage improved slightly in 2022, declining to 2.33x from 2.37x in the first quarter, away from the COVID-19 peak of 2.9x in the second quarter of 2020, According to the strategy. Quoting credit strategists of the bank, Vishwas Patkar and Cyril Sankaran.

Despite sharply higher rates, interest coverage remains a bright spot for the sector, with average coverage heading to 12.6 times from 12.5 times in the first quarter, around the highest levels since the early 1990s.

What this means is that even if the returns on new debt are higher than the average of all outstanding debt, the outstanding bonds have relatively high coupons. So most companies had to refinance at much higher levels.

Then there is history. “Given the stagflationary periods of the 1970s and 1980s, while we saw many recessions and volatility in the stock markets, IG credit (albeit before the high-yield market as we know it into existence) was relatively stable, with fairly modest defaults,” Tirupator said.

“Finally, it’s worth noting that we’re talking about front-end IG bonds and not high-yield bonds, which are more likely to default in slower growth,” he said.

markets

ES00 stock futures,
-0.31%

YM00,
-0.31%

NQ00,
-0.03%
be weaker As TMUBMUSD02Y bond yields,
4.252%

TMUBMUSD10Y,
3.751%
Keep walking to the top. gilt yield TMBMKGB-02Y,
4.464%
be escalate too Pound sterling against the US dollar,
-0.06%
Crawling from a record low of $1,034 and EURUSD,
-0.27%
It fell to $0.955. CL.1 oil prices,
+ 0.13%
1 dripping gold GC00,
-0.11%
It fell on DXY for the dollar,
+ 0.01%
higher charge. Bitcoin BTCUSD,
+ 0.81%
Green, priced at just over $19,000.

commotion

amazon.com AMZN,
-3.01%
A second global sales event will be held Prime Access early sale – to attract holiday shoppers, who are expected to look for deals early this year.

In the wake of the third massive rate hike, Atlanta Fed President Rafael Bostic said the Fed It will do everything in its power to “avoid the deep pain” of the economy. On Monday, Bostick will speak with Boston Fed President Susan Collins, Dallas’s Laurie Logan, and Cleveland’s Loretta Meester.

A far-right party with neo-fascist roots is She is set to win the nation of ItalyIn the election, though, some were reassured by leader Giorgia Meloni’s more moderate tone.

MGM Resorts MGM shares,
-1.83%
and Wynn Resorts WYNN,
-0.90%
they climb After Macau casino gains yet Relaxation of Macao government policies on coronavirus.

PG&E PCG,
-2.70%
It will replace Citrix Systems CTXS,
-0.06%
In the S&P 500 as of October 3, the EQT EQT,
-7.55%
It will replace Duke Realty DRE,
+ 0.02%.

Apple AAPL,
-1.51%
Planning to make the latest iPhone 14 in India.

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He notes “the level of devastation in many cases is in ‘never before,'” but points to what he calls “the scariest macro graph right now.” US 30-year mortgage rates are showing 90% year over year .

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