Summary of Asia Credit Trader Conference Call Industry Overview - The report focuses on the Asia credit market, particularly the high-yield (HY) and investment-grade (IG) sectors, amidst evolving macroeconomic conditions and trade tariff developments [2][7][11]. Key Points and Arguments 1. **Market Performance**: Risk assets started the week strongly, recovering from earlier spread widening in April. Asia HY outperformed, but the rally lost momentum as valuations approached this year's tight levels [2][7]. 2. **Tariff Outlook**: The outlook for tariffs has improved, with expectations that direct impacts on Asia credit will be limited. However, sectoral tariffs could significantly affect specific companies and industries [5][11]. 3. **US Economic Indicators**: The US labor market is a critical indicator for recession risks. The probability of a US recession is currently estimated at 35%, down from 45% previously, indicating a somewhat firmer growth outlook [3][11]. 4. **China's Economic Policy**: China is not expected to rush into easing monetary policy. The focus remains on the global macro backdrop rather than domestic policy changes [6][15]. 5. **Investment Strategy**: A market-neutral stance focusing on carry is recommended, as yields on Asia credit remain attractive. Preference is given to short-dated BBB, 7-10 year A, and BB corporates [6][9][10]. 6. **Credit Spread Forecasts**: The Global Credit Strategy team has revised USD and EUR credit spread forecasts tighter, indicating a shift towards carry-driven excess returns. Default forecasts for the US HY market have been lowered to 3% [8][12]. 7. **Sector Preferences**: For Asia IG, there is a preference for front-end BBB and 7-10 year A securities, particularly in China and India. In Asia HY, BB-rated corporates are favored, especially in India and Indonesia [9][10][25]. Additional Important Insights - **Technical Support**: Despite the lack of clear catalysts for a large selloff, technical factors are expected to maintain solid demand for Asia credit [11][15]. - **Hedging Strategies**: Recommendations include using Indonesia 5-year Sovereign CDS and a long/short strategy on Japan corporate CDS for hedging purposes [6][16]. - **Market Sentiment**: The sentiment remains cautious, with market participants likely to adopt a wait-and-see approach due to elevated US recession risks and the potential for further tariff developments [11][15]. Conclusion The Asia credit market is navigating a complex landscape influenced by macroeconomic indicators, trade tariffs, and sector-specific dynamics. A focus on carry and strategic positioning in credit securities is advised to capitalize on the current yield environment while managing risks associated with potential economic downturns.