We believe many of the issues that confronted the leveraged credit markets in 2022 will persist into 2023, though we hope to see resolution of certain issues as the credit cycle matures. Notable macro themes for 2023 include slower global growth with heightened potential for recession, decelerating inflation, less aggressive and less synchronous central bank policies, lower interest-rate volatility and continuing geopolitical risks.
As the end of the hiking cycle nears, we expect central bank policies to diverge globally, driven by regional differences in growth and inflation. We believe the European Central Bank will prioritize growth, since energy, the primary driver of inflation, is outside its control. Generally, we believe interest rate volatility will recede as central banks move beyond peak hawkishness, although higher rates will linger globally. As a result, markets will pivot from pricing interest rate risk to pricing fundamental risk, potentially with recessions scattered around the globe.
The prominent themes shaping our return expectations for 2023 are higher starting yields balanced against growing fundamental concerns. We believe that, barring a deep and prolonged recession and meaningful escalation of the war in Ukraine, leveraged credit should deliver positive returns.
Volta Finance Ltd (LON:VTA) is a closed-ended limited liability company registered in Guernsey. Volta’s investment objectives are to seek to preserve capital across the credit cycle and to provide a stable stream of income to its Shareholders through dividends that it expects to distribute on a quarterly basis.