Fixed-Income Outlook: Finding Relative Value with One Eye on Global Central Banks

Report Highlights

After the Brexit vote surprised the many market participants who had positioned themselves for the opposite outcome, the market panicked. Market stability—and then a rally—only arrived once central banks promised liquidity support. Looking ahead, it is likely that we will experience further volatility before the year is out. The situation in Europe and Japan is reaching a tipping point as policymakers decide whether to stand pat and wait for incoming data, or take more action as conditions worsen. Their decisions (and the Fed’s) carry significant investment implications.

Find out where our fixed-income investment team is finding relative value in a world of low and negative rates and uncertain monetary policy.

• Our Macroeconomic Research team expects solid near-term growth in U.S. underpinned by strength in the consumer sector, but the Fed likely will remain on hold until December 2016.
• Slow and steady economic growth, a cautious Fed, low interest rates, and improving oil market supply-demand fundamentals have created a favorable environment for fixed-income markets.
• The global macroeconomic backdrop, and the central banks’ willingness to continue their accommodative policies, should support risk assets going forward.
• Our oil price model calls for seasonal weakness in the second half of 2016 before prices rise to $55 by mid-2017.
• We see value in energy and basic materials credits, as well as technology and media companies.
• In securitized products, we continue to find value in new-issue aircraft lease transactions, and in collateralized loan obligations backed by loans to middle market companies.