JPMorgan Asset Management's Priya Misra Talks Treasuries, Credit, Stocks

Priya Misra · J.P. Morgan Asset Management

Triple-C high yield is idiosyncratic, has widened sharply, and is being approached very cautiously as borrowing costs rise.

High yield is effectively two markets. The triple-C sector is idiosyncratic rather than driven by the broad market, and it has widened a lot. Her fund is being very careful there because when the cost of capital rises, the most levered companies and sectors can struggle, and at some point there is no good price at which to buy that debt.

“There's the triple C sector, which I would argue is idiosyncratic... It has widened a lot. We're being very careful with that sector because when cost of capital goes up, the most levered companies and sectors can struggle.”at 2:23

Priya Misra · J.P. Morgan Asset Management

Double-B and single-B high yield is remarkably resilient, with little AI exposure and only 20bp of widening.

The double-B and single-B part of high yield does not have much AI exposure. It has been remarkably resilient, widening only about 20 basis points through the whole equity sell-off, which she calls impressive. Credit has held up well relative to equities.

“the double b, single b, actually doesn't have that much AI exposure. It's been remarkably resilient. It's widened 20 basis points in this whole move, which is impressive.”at 2:40

Priya Misra · J.P. Morgan Asset Management

Investment-grade market stays open to AI hyperscalers; heavy issuance drew strong demand despite wider new-issue concessions.

Secondary spreads did not widen despite about $70bn of issuance in the past seven days from Oracle, Meta, Alphabet, Microsoft and Apple. New-issue concessions were 15 basis points, high against a normal 3 to 4, but the deals were oversubscribed three to four times. She reads this as a split between credit 'haves' and 'have-nots', with the strongest AI-linked borrowers still able to raise debt.

“Not only did secondary market spreads not widen... the last seven days, we've had about 70,000,000,000 of issuance from all of, Oracle, Meta, Alphabet, Microsoft, Apple... new issue concessions have been 15 basis points, which is high given normal concessions of three to four basis points, but the oversubscription three four times.”at 3:36

Priya Misra · J.P. Morgan Asset Management

Bond fund inflows are strong; 6-7% high-quality yield makes bonds a safe haven from volatile equities.

Inflows into bond funds have been very strong. With 6 to 7% high-quality fixed income yield available and equity prices moving sharply, sometimes by 15% in a day for certain stocks, owning bonds may be a safe haven while investors wait to see whether the AI trade is consolidating or unraveling.

“Inflows into bond funds have been very strong... If you're getting six, 7% high quality fixed income yield and the equity market's super volatile... owning bonds might be a safe haven”at 6:08

Priya Misra · J.P. Morgan Asset Management

Permitted, powered data centers and hyperscalers are fine and gaining value; levered new clouds face costly financing.

Hyperscalers are doing fine. Data centers that already have permits, power and steel are structured well, and they may become more valuable because new data centers will be harder to build. By contrast, new clouds and highly levered parts of the AI ecosystem are where a higher cost of capital becomes a real hindrance to their business models, and the bond market has effectively closed to them.

“The hyperscalers are doing fine. The data centers that already have the permits that have the power that have the steel... If you are in the new clouds or in the highly levered parts of the AI ecosystem, that's where that cost of capital starts to become a real hindrance for their business model.”at 4:08

Priya Misra · J.P. Morgan Asset Management

Hyperscaler capex is peaking this year or next, driving heavy bond and equity issuance.

Hyperscalers have talked about large capex needs, and she expects a lot of debt supply because of it. She is unsure whether capex peaks this year or next, but says it is in the process of peaking. She also expects some equity issuance to fund the spending, not only bond issuance.

“we do expect a lot of supply because the hyperscalers came out and talked about CapEx needs and you know I don't know if it's peaking this year or next year but we're in the process of peaking in terms of CapEx.”at 6:36

Priya Misra · J.P. Morgan Asset Management

Treasuries are working as a hedge while the junk bond sell-off and equity volatility play out.

In response to the question of whether the Treasury market and the 'full faith in credit' trade are separate from junk-bond stress, she says Treasuries are working as the hedge. She also argues that much of the economy depends on the AI trade, which is why owning some Treasuries is a hedge in case the economy slows.

“It's a great point. Treasuries are working as the hedge.”at 2:15

Priya Misra · J.P. Morgan Asset Management

AI technology works but its economics are questionable, so her fund buys fundamentally sound companies and hedges AI risk.

Her fund does not mind the AI risk factor because the technology works, but she questions the economics of the AI trade. The approach is to check fundamentals and buy companies she likes, then hedge the AI exposure. If the AI risk factor is too large in a portfolio, the best hedge can be to reduce the risk itself.

“We don't mind the AI risk factor. I mean the technology works. I think we can question the economics.”at 5:21