Credit Crunch: Investor Survey 1Q - Fed, Earnings, Tech Supply

The Q1 Bloomberg Intelligence credit investor survey reveals a surprisingly upbeat tone among high‑yield managers. Despite a consensus that valuations are "rich," 70% of respondents remain cautiously bullish, citing solid fundamentals, attractive carry, and short‑duration exposure. Portfolio positioning has shifted from neutral to a net 23% overweight, though many, like Ashwin Palta of BNY Investments, stay slightly underweight on the riskiest CCC tier. This nuanced optimism reflects confidence in current spreads—still tight but supported by yields near five percent—while acknowledging the limited upside in excess returns.

Earnings momentum and geopolitical risk dominate the narrative for the quarter. Respondents ranked corporate earnings first, emphasizing that quarterly results can swing spreads dramatically for single‑B issuers. Geopolitical events follow closely, with recent market shocks demonstrating how quickly spreads can widen by 100 basis points. By contrast, a European recession and Fed rate cuts sit lower on the priority list, suggesting investors view default risk as manageable. Default forecasts remain modest—survey participants expect around two defaults per quarter, yet the index has recorded zero actual defaults since June, underscoring a disconnect between perceived and realized credit stress.

Supply dynamics further reinforce the bullish outlook. While the survey projected $17 billion of index‑eligible issuance, market participants anticipate exceeding $20 billion, driven by U.S. refinancing cycles, AI‑related financing, and a looming maturity wall in 2028‑29. Concurrently, cash holdings in high‑yield portfolios have slipped to the 0‑3% range, indicating managers are deploying capital rather than hoarding liquidity. For investors, the combination of rich valuations, strong earnings, limited defaults, and abundant supply suggests a defensive yet fully invested stance may deliver steady total returns throughout the year.