Global Fixed Income Views 1Q19Contributor Robert Michele
Themes and implications from the Global Fixed Income, Currency & Commodities Investment Quarterly meeting
- We have lowered the probability of our base-case scenario, Above Trend Growth, from 70% to 50%, in light of potential congressional gridlock, worsening rhetoric around U.S.-China trade, Brexit and Italian politics—along with quantitative tightening and likely Federal Reserve rate increases (we expect two more hikes this cycle, after one in December 2018).
- Though economic headwinds are gathering, we expect policymakers and governments are incented, and have the tools at their disposal, to manage the risks.
- We have raised the probability of Recession to 10% from 0%; while we do not believe a recession is imminent, we acknowledge the potential risk (though not one we expect) of trade war escalation and/or central banks overtightening.
- Our best ideas include: short-duration securitized credit, which is tied to the strong U.S. consumer; high yield credit, as spreads appear attractive relative to expected defaults; and local emerging market debt, where 2018’s yield spread widening looks overdone.
Scenario probabilities (%)
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