Andrew Sheets, Head of Corporate Credit Research at Morgan Stanley, interviews Vishwas Patkar, Head of U.S. Credit Strategy at Morgan Stanley, about their 12-month outlook for credit markets. Patkar describes their central scenario as slowing growth, firm inflation, and no Fed rate cuts until Q1 2026, resulting in a mixed outlook for credit. He highlights the positive aspects of de-escalated trade tensions and compelling all-in yields, while acknowledging the negative impact of slowing economic activity. Patkar emphasizes the importance of investor selectivity, noting the generally good health of corporate balance sheets but highlighting risks associated with higher interest rates for highly leveraged companies. He concludes by suggesting investment-grade credit offers the best risk-adjusted return, while lower-tier high-yield credit presents the greatest risk. The discussion also touches upon potential better and worse scenarios based on further tariff rollbacks or a more significant economic slowdown, respectively.
