Barclays Capital presents bullish outlook

Barclays Capital’s quarterly research presents a bullish outlook on the global economic recovery. Analysts noted that the rapid-growth phase will shift from emerging Asia to the US and Europe, and further upside in risky assets can be expected.

For the credit markets, this means that investors should take a selective view on both the investment grade and high yield corporate universe. Spreads are expected to tighten, and analysts prefer to stay long credit, while being mindful of certain signals that could prompt exposure trims.

For high grade corporates, technicals and fundamentals are supportive of cash despite the rally, but industrials could face headwinds from relative value considerations. Analysts see plenty of opportunities in relative value trades and credit selection, and prefer to move down the cpaital structure into preferred stock and subordinated bank paper for financials. Retail, media cable, technology, and food and beverage sectors provide good credits.

The high yield and leveraged loan markets offer value but on a selective basis, analysts say. Given the potential for a moderate correction in valuation, analysts recommend taking advantage of high-beta credits, such as triple-B credits that have lagged in the rally, as well as hybrids. Furthermore, investors may also want to lock in high carry and roll down in bonds such as euro-denominated 2012 bonds of Kraft, Telecom Italia, Volvo, and Casino. Finally, analysts recommend allocationg some gains toward tail-risk hedges using credit default swaps and swaptions.