Pete Cecchini, principal at Axonic Capital, joined Bloomberg TV to share his views on credit market dynamics, Federal Reserve policy and fiscal challenges as we move into 2025.
Reflecting on 2024, Cecchini described it as a year of “manic narratives,” with market expectations for Federal Reserve rate cuts shifting dramatically. In September, the Fed Funds Futures market anticipated four cuts for both 2024 and 2025, but that has since dropped to just one cut for 2025. Cecchini warned that the current consensus is overwhelmingly bullish and lacks attention to valuations and risk-adjusted returns.
He pointed to structured credit as a standout investment opportunity, particularly when compared to corporate credit. “BB-rated bonds are trading at significantly wider spreads than comparably rated corporate bonds,” Cecchini explained, emphasizing the superior risk-adjusted returns available in structured credit.
Cecchini also highlighted fiscal policy as a critical risk, noting the U.S. deficit-to-GDP ratio at nearly 7%—a level typically seen only during wartime. He cautioned that fiscal tightening expected in 2025 could remove growth tailwinds that were prevalent in 2024.
“Inflation hasn’t been fully beaten,” Cecchini said, adding that elevated rates are likely to lead to slower growth as the economy adjusts.
If you have any questions about Axonic’s views on credit markets and how to position your portfolio for 2025, please feel free to contact us.