Morgan Stanley Global Credit Research WebcastFebruary 7, 2024Andrew Sheets, Global Head of Credit Research | StrategistAron Becker, Head of European Credit Strategy | StrategistMORGAN STANLEY & CO. INTERNATIONAL PLC+Vishwas Patkar, Head of US Credit Strategy | StrategistDavid Hamburger, Head of US Sector Credit Research | Credit AnalystMORGAN STANLEY & CO. LLCKelvin Pang, Head of Asia Credit Strategy | StrategistMORGAN STANLEY ASIA LIMITED+Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investment decision.For analyst certification and other important disclosures, refer to the Disclosure Section, located at the end of this report.+= Analysts employed by non-U.S. affiliates are not registered with FINRA, may not be associated persons of the member and may not be subject to FINRA restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.Morgan Stanley ResearchGlobalFebruary 7, 2024 11:28 AM GMTAndrew SheetsHead of Corporate Credit ResearchWe Believe in a Soft Landing, a Good Backdrop for CreditSource: ICE, Ibbotson, Bloomberg, Morgan Stanley ResearchHistorically, credit does best under “modestly positive” growth. That’s what we forecast for 2024 GDP at +1.6% (US) and +1.0% (euro area). Improving Mfg PMI is also a good sign, in our view. However, growth in Asia is different.Lower Inflation Is Key, but Should Allow Significant EasingInflation is the most important macro variable. We think it continues to moderate, allowing policy rates to fall rapidly towards neutral. While don’t see the first Fed/ECB cut until June, the direction of travel, rather than the precise starting point, is more important to credit, in our view.Fed: Cutting 300bp from June 2024Source: Bloomberg, Morgan Stanley Research forecastsECB: Cutting 200bp from June 2024Source: Bloomberg, Morgan Stanley Research forecasts5.3755.3755.1254.8754.3753.8753.3752.8752.3752.92.42.32.22.32.12.0 2.0 2.10.01.02.03.04.05.06.0Jul-18May-20Apr-22Feb-24Dec-25Rate (%)FF Tgt RateFF F'castPCE-cPCE-c F'cast4.00 4.003.753.503.002.502.25 2.002.003.42.42.12.0 1.91.92.02.12.0-1.00.01.02.03.04.05.06.0Jul-18May-20Apr-22Feb-24Dec-25Rate (%)ECB TRECB F'castCPI-cCPI-c F'castValuations – Credit ‘Richness’ Varies MateriallySource: Bloomberg, Morgan Stanley Research“Richness” varies: Current spreads on the 20-year range 9633082117204306819881171091313911151512435221,1511361521260%25%50%75%100%US IGUS HYUS AsUS BBBUS BBsUS BsUS CCCsUS IG 3-5yrUS IG 7-10yrUS IG 10y+EUR IGEUR HYEUR AsEUR BBBsEUR BBsEUR BsEUR CCCsEUR 3-5yrEUR 7-10yrEUR 10yr+Spreads (bp) and %-tile on 20yr RangeValuations – Credit Is Posit...
