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Credit is acting like a late-cycle safe haven, but that can be deceptive: when investors crowd into spread product while inflation remains sticky, the market is often pricing a benign disinflation path that may not survive a second-wave price shock. The first-order winners are high-quality issuers with refinancing needs in the next 12-24 months; the second-order winners are lenders and private credit platforms that can keep terms tight even if public spreads widen, because refinancing demand gets forced into less transparent channels.

The more interesting loser is not just cyclical credit, but duration-sensitive balance sheets tied to consumer and industrial demand that depends on cheap financing and smooth trade flows. A tariff regime or supply-chain rerouting tends to show up with a lag: margins compress first through input costs, then cash conversion worsens, then leverage ratios deteriorate, so the stress is often visible in earnings before defaults rise. That argues for watching BB/B rated industrials and consumer discretionary credits, where the market usually underestimates the speed of downgrade cascades once EBITDA revisions turn.

The market’s bigger blind spot is that persistent inflation can be bullish for nominal growth but bearish for credit quality if rates stay high enough to keep refinancing windows constrained. If the slowdown narrative intensifies, the Fed may eventually pivot, but that would likely help Treasuries and quality IG more than lower-quality credit; the recovery trade in HY is often a trap if the underlying problem is margin compression rather than pure demand shock. Over the next 1-3 months, the key catalyst is whether hard data weakens enough to force rate cuts before spreads have repriced the deterioration.

Contrarian view: the consensus may be too comfortable with the idea that “credit is strong” because realized defaults are still low. Defaults are a lagging indicator, and the real signal is rising dispersion—good issuers can refinance, weak ones cannot—so broad credit exposure may be less attractive than owning the capital structure selectively. The setup favors relative-value trades over outright beta until either inflation convincingly cools or growth reaccelerates.