May 16, 2017
With spreads tight in investment-grade and high-yield corporate bonds, loans, structured credit, and Agency mortgage-backed securities, we expect an uptick in volatility this summer. The Federal Reserve is set to continue to raise interest rates—and at a faster pace than that which is priced in the market—which means positioning for a flattening yield curve will remain a major theme in our portfolios. Our view on the global macroeconomic environment is positive, which should support strong credit fundamentals for several years. We are also focused on the legislative complexities of passing President Trump’s pro-growth agenda. Failure to put his plans into effect in a timely manner may cause markets to realize that the Trump rally is long on promise and short on delivery.
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FEATURED PERSPECTIVES
Risk assets will likely enjoy another rally while the Fed stays on hold, but the pause will only allow excesses to become more pronounced.
Should the mood this year at Davos prove once again to be a contra-indicator, this may be the signal that the economy is likely to re-accelerate soon and that the party in risk assets continues.
What would be a normal seasonal correction is turning into the worst December selloff in equities since the Great Depression.
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