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Mind the Gap
- Amid continued volatility in sovereign bond yields, a remarkably stable feature of markets has been in bond spreads, with little signs currently of a surge in corporate spreads, as was seen following the last inflation shock in 2022.
- Given the relatively muted trends in headline inflation versus that previous shock, current market pricing looks over done.
- In contrast, corporate spreads remain close to historic lows, both in Europe and the US, trading between 50-80bps above risk-free rates.
- However, the AI investment cycle in the US and globally is set to rival if not surpass previous super cycles in real estate and Telecoms in the 1990/2000s, and even the railroad boom of the 1800’s.
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