JPMorgan Confident in Corporate Bonds Amid Bank Upheaval

An executive at America’s largest bank is confident corporate bonds will weather the recent banking industry turmoil.

In an interview with Bloomberg News Tuesday (March 28), Jed Laskowitz, a chief investment officer at J.P. Morgan Asset Management said that investment-grade credit can provide returns “in a world where growth remains slow and earnings in the US are uncertain.”

Laskowitz argued that while there is still a lot of work to be done in the banking world, the quick regulatory response this month will keep contagion limited. He said there’s still a danger of a hard landing for the U.S. economy, even with the Federal Reserve’s recent indication that its tightening was close to an end.

He said he is paying attention to how less liquidity and tighter credit conditions are affecting consumers, small businesses and commercial real estate. For example, credit card balances have been steadily creeping up.

“Those risks, for now, are not enough for us to take a large underweight positions in equities,” Laskowitz told Bloomberg.

“It’s important not to overlook the opportunities. The risk is that the Fed tightening and a deeper recession could lead to a deeper earnings recession. But we’re not there yet.”

The Federal Reserve last week raised its benchmark interest rate by 0.25%. As PYMNTS reported, while there may not be more rate hikes on the horizon, some of the language from Chairman Jerome Powell suggest a tougher landscape for both consumers and corporations.

“Financial conditions seem to have tightened, and probably by more than the traditional indexes say,” Powell said at a news conference.

Powell also noted in other remarks that the turmoil in the banking world could have a lingering effect — likely in a “tightening of credit availability.”

“That means, of course, that banks will continue to pull back on lending, will tighten the terms and rates and the lending pool itself,” PYMNTS wrote. “The immediate impact is that borrowing will become more expensive as interest rates increase.”

With less available credit, consumers and small businesses who aren’t that leveraged will lack the financial firepower they might like to have to deal with everyday expenses or — for businesses — capitalize on new growth opportunities.

PYMNTS research has found that there’s been an inclination to use credit more often in the months ahead. As noted in the LendingClub/PYMNTS collaboration “New Reality Check: The Debt and Credit Deep Dive Edition,” a large percentage of consumers — 27% of paycheck-to-paycheck cohorts — would be willing to take on more credit card debt.