Schroders has downgraded US credit exposure, warning that tight spreads and relaxed lending standards are signs of growing “froth” in credit markets.
Chief investment officer of multi-asset, Patrick Brenner, said the firm remains cautious on US credit following a prolonged period of high demand for yield, where lending standards have weakened and recent bankruptcies have highlighted rising risk.
“After a long stretch of insatiable demand for yield, credit spreads are tight and competition among lenders has increased,” Brenner said. “Recent bankruptcies and write-downs are symptomatic of this.”
Despite this, Schroders remains positive on global equities, underpinned by solid corporate earnings and resilient US growth.
Brenner said the risk of a US recession remains low for now, despite weaker payrolls, tariff risks and government shutdown concerns.
“We continue to view this as late-cycle behaviour rather than the onset of a recession,” he said. “Corporate fundamentals are still strong, particularly in the US and China.”
Schroders has maintained its underweight position in US Treasuries, saying bond yields could rise further given the level of rate cuts already priced in.
The team also remains long gold, viewing it as an effective hedge against sovereign debt pressures, inflation and geopolitical risk.
Elsewhere, Schroders holds an underweight position in the US dollar against the euro and Brazilian real, and recently initiated long positions in the Australian dollar and Korean won to capture regional divergence.
Brenner said the team remains positioned for positive nominal growth, supported by fiscal stimulus and policy measures under the Trump administration.
“Overall, we are seeing a soft patch rather than a downturn,” he said.
“Fiscal support remains strong, liquidity conditions are favourable, and we continue to find selective opportunities across equities and commodities.”
