Demand for high-yield corporate bonds waned in the first quarter as Treasurys sold off, but signs of a turnaround are visible.
Changes in monetary policy, rising corporate leverage, and a deteriorating technical landscape are taking a toll.
Income-seeking retail investors are driving the market for municipal bonds, but a disciplined approach can still uncover opportunities.
Improving fundamentals and limited supply have insulated the sector from broader market volatility.
Increased volatility could lead to wider credit spreads and a migration to higher-quality fixed-income assets.
Benign conditions support near term value in credit, but default rates will rise as the Fed tightens further and corporate debt levels continue to grow.
While short-term drivers for spread tightening are in place, we expect modest widening later in the year.
Tight spreads and weak call protection fuel our preference for shorter CLO and senior ABS tranches.
Credit performance has been strong, but the erosion of investor protections raises risks in the next downturn.
Investors flocked to floating-rate investments in 2017 as rising Libor offsets post-crisis tights in spreads.
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