International | 11:18 AM
Macro Talking Points from Benoit Anne, Senior Managing Director and Head of Market Insights, MFS Investment Management.
- The formidable resilience of global credit
- Front end vs. long end
- The case for strong valuation discipline in the face of heightened uncertainty
The formidable resilience of global credit
The macro backdrop has become more complicated, yet credit markets have held up well. In both the US and Europe, spread moves over the past few months have been measured, underscoring this resilience.
Even the March sell-off looks modest in historical context. Since the start of the Iran war, US IG spreads widened by 9bp to a recent peak before tightening again; EUR IG spreads widened by 16bp over a similar period.[1]
US credit has therefore outperformed Europe; consistent with expectations that Europe could face a larger macro shock than the US amid the current geopolitical crisis.
Still, these moves are not alarming. The same message comes through in credit returns (excluding rates): March was clearly a weak month, but losses were not outsized across markets.
US IG credit returns in March were minimal; in Europe, EUR IG credit returns were -0.43% last month; only a fraction of the drawdown we saw in April 2025 after Liberation Day.[2]
The pain has mainly come from rates rather than spreads, as duration has been pressured by higher oil prices and expanding government spending.
Looking ahead, we believe that global credit will remain resilient, supported by our view that any growth shock should be manageable across a number of markets.
Our curve learning: front end opportunity vs. long-end fiscal risk
Higher market rates and a steeper yield curve can often be interpreted as a positive macro signal. Not this time, however.
Long-end yields are edging up as investors demand more term premium and worry about fiscal discipline. The recent rise in nominal rates makes the point: since the start of the Iran war, the move in the US 10-year has been driven largely by higher real yields, not a material repricing of inflation.
That looks less like stronger growth and more like a higher expected cost of capital — especially against the backdrop of larger anticipated budget deficits.
So where is value on the US curve? Our investment team sees it in the front end, where monetary policy still looks mispriced.
Markets are pricing modest Fed tightening, which sits uneasily with the view there remains scope for cuts further out. With the short end attractive and the long end exposed to rising fiscal risk, the case for a steeper curve remains intact.
Duration, however, can be hard to own here given uncertainty around the policy path and elevated fiscal risk.
Bottom line: be selective and pick the right spot—front ends look compelling in many markets, but parts of the long end look increasingly hazardous.
Valuation is your margin of safety
In uncertain markets, it is not optimism that protects capital, it is the price you pay.
Recent conditions are a reminder that valuation discipline is a practical anchor for equity portfolios, particularly when markets de-rate and inflation risk re-emerges.
Historically, cheaper stocks have tended to hold up better in drawdowns and still participate when sentiment turns.
Valuation support today remains meaningful. Global value stocks continue to trade at a wide discount to more expensive peers, despite reasonable earnings expectations and improving market breadth beyond a narrow group of mega-cap growth stocks.
Valuation also matters more when the cost of capital rises; or becomes less predictable. In that environment, balance-sheet strength, capital discipline and execution quality become more decisive drivers of outcomes.
The macro backdrop reinforces the case. The current crisis in the Middle East is accelerating structural shifts already underway: the next phase of energy markets is likely to be about security and reliability, not just cost minimisation.
Years of underinvestment in fossil fuels, nuclear, infrastructure and grids have tightened supply just as geopolitical risk has re-entered the global system.
These capital-intensive, asset-heavy areas often sit in more value-oriented parts of the market and could benefit as investment priorities reset.
From a portfolio perspective, value investing is not a macro bet. It is a consistent insistence on a margin of safety when uncertainty is high and dispersion is wide.
In markets shaped by inflation sensitivity, real-asset scarcity and higher financing costs, valuation remains a powerful tool to manage downside risk without giving up upside over full market cycles (contribution from Ross Cartwright, Lead Strategist – Strategy and Insights Group).
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Re-published with permission. Views expressed are not by association FNArena’s.
The authors’ comments, opinions and analysis are for general informational purposes only and should not be considered investment advice or a recommendation to invest in any security or to adopt any investment strategy. This material has been prepared without taking into account any personal objectives, financial situation or needs of any specific person. Comments, opinions and analysis are rendered as of the date given and may change without notice due to market conditions and other factors. This material is not intended as a complete analysis of every material fact regarding any market, industry, investment or strategy. No forecasts can be guaranteed.
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[1] Sources: Bloomberg. US IG = Bloomberg US credit index. EUR IG = Bloomberg pan-European EUR IG index. Beginning of the Iran war = 28 Feb. 2026. Data as of 10 April 2026.
[2] Sources: Bloomberg. EUR IG = Bloomberg pan-European EUR IG index. Excess returns data from Bloomberg. Returns are gross and in EUR.
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