US investment-grade credit appears to be a better bet than Treasuries given America’s downbeat fiscal outlook with deficits projected to plow higher, according to Deutsche Bank AG’s private banking arm.
It may not matter whether President Joe Biden wins the November presidential election, or Republican candidate Donald Trump returns to office: US government spending is likely to increase, said Deepak Puri, chief investment officer for Americas at Deutsche Private Bank in New York.
“Given the fiscal backdrop, I think it makes sense to consider investment grade” credit, he said in comments to reporters. “I’m not saying that short duration Treasury bills aren’t appropriate, but I think if you’re getting a nice 30, 40 basis point spread on Treasuries, it might be a good way of investing in fixed income.”
Just this month, the nonpartisan Congressional Budget Office increased its estimate for this year’s US budget deficit by 27% to almost $2 trillion. The office sees the shortfall expanding to $1.92 trillion in 2024, a $400 billion increase from what they had anticipated in February.
“If you have, let’s say Biden 2.0, you might see more fiscal spending to sort of go back to the ‘Build Back Better’ plan that would put more Treasury supply into circulation,” Puri said. “If it’s a Republican presidency, then you can think of tax cuts, which is also a fiscal stimulus to the economy, but obviously you also have a budget to balance and you’re gonna spend money.”
Some of the best opportunities within high-grade credit may be notes issued by financial institutions due to the robust earnings growth which will lead to further tightening of their spreads, Puri said.
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