NEW YORK, May 1 Reuters Bond investors, fearing a recession is around the corner and preparing for an end of the Federal Reserve39;s tightening cycle, have embraced the safety of U.S. Treasuries and shed risky exposures in investment grade and high yield credit.

The collapse in March of Silicon Valley Bank and Signature Bank, and the current turmoil at First Republic Bank, have further pressured market players to take a defensive stance to protect their portfolios.

The Fed is widely expected to raise interest rates by 25 basis points bps at its meeting this week to a range of 5.05.25. The betting is that it will pause after that and possibly start lowering rates in the fall, although the debt ceiling saga has complicated the thinking on that scenario.

Since last March, the Fed has raised interest rates by 500 bps in one of most aggressive tightening cycles over a similar time span since the late 1970s.

Tight monetary policy, whose impact has not fully emerged yet but it39;s going to over the next six months, combined with tighter lending conditions in the banking system, will result in growth continuing to slow as we move through 2023, said Chip Hughey, managing director, fixed income, at Truist Advisory Services.

It remains a nervewracking environment and fund managers have remained either neutral on their risk stance, stuck to Treasuries and highquality investment grade corporate bonds, or extended duration, which measures the bond39;s sensitivity to interest…