She has known the bond market for almost three decades. Tatjana Greil-Castro is Global Head of Investments at Muzinich & Co., the US asset manager specializing in fixed income. Based in London, she manages the Muzinich Enhanced Yield Short-Term Fund. The fund invests in corporate bonds with maturities of up to two years and has assets of just under 10 billion euro.
Greil-Castro has been with Muzinich for almost 20 years. She began her career in credit research at Merrill Lynch in 1999, followed by positions at L&G, Fortis Investments and MetLife.
Member of the Bond Market Contact Group and a Prominent Senior Advisor
The European Central Bank (ECB) also benefits from her expertise: Greil-Castro is a member of the Bond Market Contact Group (BMCG), through which monetary policymakers regularly engage with market participants. The importance Muzinich attaches to monetary policy expertise is also reflected in the role of Thomas Jordan, who served as Chairman of the Governing Board of the Swiss National Bank (SNB) from 2012 to 2024 and has been working as a Senior Advisor to the asset manager since last year.
The Austrian Greil-Castro is not only deeply familiar with London’s financial center but also maintains close ties to the land. Outside the British capital, she owns a farm where she explores solutions for sustainable agriculture.
In August, Greil-Castro was in Zurich for client meetings (Muzinich also has an office in Geneva). She met finews at the firm’s Zurich office, which recently relocated from Tödistrasse to Sihlstrasse.
Ms. Greil-Castro, longer-dated government bonds from the US, the UK and EU countries are once again offering high, secure yields. From an investor’s perspective, doesn’t that diminish the appeal of your fund, which focuses on short-dated corporate bonds?
You cannot look only at the absolute yield; you always have to consider it in relation to the average remaining maturity, or duration. In other words, yield is in the numerator, duration in the denominator. What matters is the predictability of returns. Returns on long-dated government bonds have low predictability. They carry significant interest-rate risk and are therefore highly volatile. In our strategy, by contrast, 50 percent of the bonds mature within two years. But government bond markets are not actually our biggest competitors.
What are?
Money market funds and, above all, cash. Many investors are unaware that holding cash exposes them to a constant erosion of purchasing power in real terms because of inflation. Our yield is twice the inflation rate.
In return, you accept the risk that companies may be unable to repay their bonds.
Yes. But first, the short maturity also limits default risk. It is much easier to assess where a company will be in two years than where it will be in 20 years. Second, 60 percent of our investments are in investment-grade (IG) bonds, where defaults are extremely rare. Within high yield (HY, speculative grade), we have a larger allocation to the higher-quality BB segment, at 25 percent, than to the weaker B segment, at 5 percent. Third, credit analysis is central to our approach so that we avoid having bad apples in the portfolio wherever possible. And fourth, should a payment default nevertheless occur, the impact on the overall portfolio would be limited because we are broadly diversified.
«No company could afford to operate the way governments do.»
Spreads on corporate bonds over government bonds have been tight for some time, and at some point the exceptionally long and benign credit cycle will come to an end. Is the market adequately compensating investors for the associated risks? Wouldn’t investors be better off with safe government bonds after all?
I see it exactly the other way around. Companies continue to offer additional yield even though, unlike most governments, they generate positive cash flows and are growing at a healthy pace. Governments have persistent structural deficits, and their debt is growing much faster than their economies. No company could afford to operate the way governments do. Most companies today are stronger borrowers than most governments.
But there is a long-standing rule that rating agencies do not rate a company more highly than the sovereign of the country in which it is domiciled.
That is correct, and Italian banks are a prominent example. But if I have the choice, even in Italy, despite this ceiling, I would rather invest in a strong company than in government bonds.
Government debt in the US and elsewhere has been rising for decades without causing excessive concern in the markets until recently. Even today, there is a camp that interprets the rise in yields positively – as a signal that significantly stronger economic growth can be expected in the future. What is your view?
The way markets interpret this is indeed crucial. Personally, almost 25 years ago I already questioned the idea that the Treasury market should be considered risk-free. Today, we are seeing signs that the system is under stress. One indication is the action taken by US Treasury Secretary Scott Bessent, who announced large purchases of long-dated US Treasuries. In reality, the volume was small – a drop in the ocean. The US government is becoming increasingly desperate in the face of its debt problem, resorting to grandiose announcements and eroding trust. A company that wants to survive in the market could never behave this way.
«The US government is becoming increasingly desperate in the face of its debt problem, resorting to grandiose announcements and eroding trust.»
The US government is clearly betting that artificial intelligence (AI) will deliver sustained productivity gains and thereby trigger a growth boost for the overall economy. That would also improve the sustainability of US debt. Is this a realistic scenario, or more of a last hope?
For that calculation, which is based on a multitude of partly contradictory assumptions, to work out, a great many things would have to go right. I do believe that, on balance, AI will create more jobs than it destroys, but the growth boost would have to be extremely strong given the markedly negative debt dynamics and the high primary deficit. Moreover, the world is too complex for everything to be reduced to the single factor of AI. In short, I do not believe AI alone will solve the debt problem.
AI is also making its presence felt in the bond market. The so-called hyperscalers – major technology companies such as Amazon and Alphabet – have raised tens of billions through huge bond issues. Have you invested as well?
We are not tied to a bond index, so we can exclude even large issuers if we do not like the risk or the yield. Until recently, these technology companies had little need for funding, and the spreads they offered investors were correspondingly meager. That has changed completely in recent months. They now offer higher spreads than the overall market – a so-called new-issue premium. That can be attractive. Here too, it is important that we restrict ourselves to short maturities: How these companies will develop over the next two or three years is reasonably foreseeable. But where will a company like Amazon be in 20 years?
But investors are compensated for longer maturities through a term premium.
That is correct, but I would argue that the premium today is not high enough to adequately compensate investors for the risk they are taking.
«I would argue that the term premium today is not high enough to adequately compensate investors for the risk they are taking.»
Your fund is limited to bonds, but Muzinich is also active in private credit. Is private credit a competitor to or a complement to the bond markets?
Until two years ago, the HY segment was shrinking, which was partly attributed to private credit. Today, however, both markets are growing. In private credit, some investors were not aware that the vehicles are only semi-liquid. If everyone rushes for the exit at the same time out of fear, private credit does not work. And just because prices are not quoted daily does not mean there is no risk. But there have also been problems on the provider side because some managers did not diversify their portfolios sufficiently. That probably has something to do with the fact that they previously worked in bank lending.
Let’s turn to monetary policy. After the financial crisis, central banks were long regarded by markets as the dominant players. That now seems to have changed. Today, central banks appear to be merely reacting, and the US Federal Reserve is even having to fend off concerns that its independence may have been compromised. Do you share the impression that central banks are on the defensive?
Yes, they are no longer «the only game in town.» The debate about independence is somewhat strange because, in essence, central banks had already lost that independence during the global financial crisis.
«The current debate about central bank independence is somewhat strange because they had already lost that independence during the global financial crisis.»
In what way?
At the time, they did not limit themselves, as the textbooks would suggest, to their role as lender of last resort. Instead, they adopted a range of unconventional measures, such as quantitative easing and negative interest rates, and maintained them for years.
They justified these exceptional monetary policy tools by arguing that this was the only way to ensure price stability and therefore fulfill their mandate. What was wrong with that?
The problem is that, to this day, they focus solely on consumer prices while ignoring asset prices. Central banks fueled prices in real estate and equity markets. The result today is that young families can no longer afford to buy their own homes, and asset price inflation is gradually spilling over into consumer prices.
Do you discuss such issues with the ECB in the BMCG?
In this group, it is generally the ECB that asks the questions. Asset price inflation has, however, repeatedly been a topic of discussion. But those discussions have had no consequences for the monetary policymakers’ framework. The problem is that, in the minds of central bankers and financial market participants alike, the measure used for the price-stability objective – the consumer price index – has itself become the objective.
« In the minds of central bankers, the measure used for the price-stability objective – the consumer price index – has itself become the objective»
In that respect, I almost find the new head of the US Federal Reserve, Kevin Warsh, likeable. He is challenging entrenched ways of thinking and established patterns. For example, he is considering which interest rate is actually relevant from an economic and monetary policy perspective, and he does not want monetary policy activism.
Could Warsh be deliberately allowing the government bond market to exert pressure, because that pressure could force politicians to pursue better fiscal policy over the medium term?
That is certainly conceivable. One argument in favor of this interpretation is that monetary policy would then have to do less. However, it is difficult to speculate about what Warsh really thinks and intends.