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.
The commercial real estate market is poised for income growth with stable valuations.
Tax reform will be a key driver of performance for high-yield corporate bonds in 2018.
Clarity on tax policy helps drive spreads to 10-year tights, but headwinds remain.
We focus on quality as the effects of unintended consequences from the tax overhaul loom large.
With fundamentals improving, investors should weigh the benefits and risks of credit expansion.
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