While the U.S. economy remains on solid footing, exogenous risks threaten asset values, market confidence, and the strength of the U.S. economy.
Here are the key takeaways from our latest Fixed-Income Outlook report:
- General investor confusion prevails as the mid-2018 market theme. Investment-grade corporate bond spreads are wider while high-yield corporate bond spreads are tighter since 2017.
- While the U.S. economy remains on solid footing, tail risks are getting fatter.
- These risks include the possibility of an inflationary trade war, increasingly restrictive Federal Reserve policy, a potential fall budget showdown, instability in Europe and emerging markets, saber-rattling with Iran, and the consequences of the midterm elections.
- The markets have reflected this uncertainty, evidenced by spasms of volatility and repricing in credit markets.
- The situation calls for a duration barbell, a move up in credit.
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