Janus Henderson index suggests Fed will achieve soft landing

investmentnews.com:

Credit risk indicators from Janus Henderson Investors have stopped flashing all red for the first time since central banks stepped up a fight against inflation, suggesting the Federal Reserve looks increasingly likely to achieve a coveted “soft landing.”

Access to capital markets as well as cash flow and earnings are now amber on the asset manager’s traffic light system, having been red since the third quarter of 2022. A debt load and servicing indicator remains red.

This easing of some risk signals comes as expectations of interest-rate cuts by major central banks in 2024 have reduced the cost of company debt in recent months, making it easier to refinance old debt with new. That brings the policymaker goal of curbing inflation without triggering a major economic slump, known in the market as a soft landing, into sight.

“The Fed has already signaled a pivot in policy rates,” Jim Cielinski, global head of fixed income at Janus Henderson, said in a statement Monday. “We are slightly overweight credit and see further spread tightening as likely if the consensus ‘soft landing’ narrative holds.”

The cash flows indicator turned to amber after better-than-expected economic data in the US and “the bottoming” of purchasing managers’ index numbers in Europe, the firm said. Access to capital improved thanks to a slump in yields late last year and a continuing drop in corporate bond spreads in early 2024.

By contrast, credit fundamentals worsened slightly, with default rates picking up in US and European junk-rated firms, keeping the debt load and servicing indicator in the red.

Janus Henderson, which manages around £263 billion ($332 billion) in assets, sees high-grade firms as offering “the most attractive blend” of credit