Peter Cecchini, director of research at Axonic Capital, was featured on Bloomberg TV on September 15 to provide valuable insights into the high yields sector, emphasizing the significance of risk-adjusted returns and the asymmetry of returns. He contrasted this perspective with Axonic’s own outlook, highlighting their skepticism about the effectiveness of the VIX, which has been influenced by a handful of technology companies benefiting from the AI narrative. Instead, Cecchini pointed to the resilience of interest rates as a more reliable forward indicator. He also underlined the importance of yield curve volatility, especially when it’s inverted, as a more accurate predictor compared to the VIX, given concerns about the composition of the S&P 500.
Cecchini expressed reservations about the risk-adjusted returns in high yield investments and suggested that better returns could be found in structured credit, where high single-digit yields could be obtained with minimal credit risk, making it their current focus.
When questioned about the current market stance on cash, Peter Cecchini opined that cash was a reasonable asset class at the moment. He specifically pointed out the attractiveness of cash substitutes like T-bills when compared to equity or dividend yields from a risk-adjusted returns perspective, aligning with Axonic’s outlook. He also highlighted existing market fragility, wild dispersion and increased leverage in the loan market, noting potential concerns regarding EBITDA weakness. Furthermore, Cecchini addressed the fiscal stimulus’s impact on consumer strength while cautioning about rising delinquencies among sub-prime borrowers. Overall, his insights shed light on the complex dynamics of today’s financial landscape.