KBRA examines risks to the status quo against a “soft landing/no recession” backdrop, with unsecured credit spreads trading well through long-term averages. While economic slowdown typically occurs after the Federal Reserve completes its hiking cycle, we believe it is too early to dismiss the long and variable lagged effects of not only monetary tightening on the part of the Fed, but also more restrictive lending standards on the part of banks.

Moreover, we believe the central bank is incentivized to leave rates higher for longer in its efforts to fully tame inflation. All of this represents a significant headwind to equity valuations, where history tells us that any correction in those markets is likely to lean on credit spreads.

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About KBRA

KBRA is a full-service credit rating agency registered in the U.S., the EU and the UK, and is designated to provide structured finance ratings in Canada. KBRA’s ratings can be used by investors for regulatory capital purposes in multiple jurisdictions.

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