Global Fixed Income Views 3Q18Contributor Robert Michele
Themes and implications from the Global Fixed Income, Currency & Commodities Investment Quarterly meeting
- Our base-case scenario, a 75% probability of Above Trend Growth, remains unchanged, underpinned by global economic strength, evidenced by growth in U.S. and global corporate profits, along with stable to improving credit card receivables and municipal tax receipts.
- We expect the Federal Reserve (Fed) to continue its gradual hiking cycle, with the fed funds rate ending the hiking cycle at around 3%.
- A significantly stronger dollar remains a risk to global markets, especially within emerging markets.
- Volatility across markets is likely to increase as the market transitions from quantitative easing (QE) to quantitative tightening (QT).
- We continue to own credit: Short-duration securitized credit remains our favorite market, given the strong U.S. consumer. The leveraged credit market (bonds and loans) is attractive as the corporate market benefits from expected revenue growth. We remain cautious on U.S. rates, with the increase in supply potentially weighing on the market as the Fed unwinds QE.
Scenario probabilities (%)
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The value of investments and the income from them can fall as well as rise and investors may not get back the full amount invested. Past performance is not a guide to the future.
Investments in bonds and other debt securities will change in value based on changes in interest rates. If rates rise, the value of these investments generally drops. Securities with greater interest rate sensitivity and longer maturities tend to produce higher yields, but are subject to greater fluctuations in value. Usually, the changes in the value of fixed income securities will not affect cash income generated, but may affect the value of your investment. Credit risk is the risk of loss of principal or loss of a financial reward stemming from a borrower’s failure to repay a loan or otherwise meet a contractual obligation. Credit risk arises whenever a borrower is expecting to use future cash flows to pay a current debt. Such default could result in losses to an investment in your portfolio.
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