Federated Hermes' Fraser Lundie: Honey, I shrunk the credit market

Valuation and uncertainty struggle

In the hit movie Honey, I Shrunk the Kids, the children were left bewildered when everything in their world became outsized. Credit investors too might find themselves perplexed when trying to marry the rosy sentiment and extreme valuations with the many risks and uncertainties muddying the outlook for corporate bonds.

But this is not science fiction, this is simply technicals, and the technical picture is dominating the fundamental like never before, with the former requiring less logical justification than the latter.   It is not long after a bond shoots higher in the market without an obvious reason, that someone on our desk quips, "more buyers than sellers".   This sentiment is true of credit more broadly today. Moreover, both sides of it - the demand and the supply - are equally responsible.  Copper supply squeeze offers potential for gold-busting returns The demand side is perhaps mor...