Two years ago, central banks embarked on the most aggressive monetary tightening in decades to restrain the extraordinarily expansive financing conditions deployed during the pandemic, measures that helped to avert a major economic crisis by containing the wave of defaults that had then begun in credit markets. Benefitting from the strong economic recovery, corporates’ fundamentals have returned to pre-COVID levels.

While the Fed seems to have succeeded in achieving a soft landing in the current monetary tightening cycle, risks for a harder landing remain with the most significant being persistent inflation. What is certain is that the Fed's room to manoeuvre is shrinking, and it seems to be preparing the markets for higher-for-longer rates, which will no doubt continue to generate volatility in rates and credit markets.