US Bonds

Despite the recent signal whipsaws, we have been cautious toward all risky assets and we continue to recommend defense amid higher volatility across all asset classes.

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A significant rise in real yields would make us turn cautious toward all spread products.

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Attractive relative valuation outweighs concerns about heavy issuance and moderate deterioration in underwriting standards.

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Both interest rates and investment grade spreads are at a reasonably attractive level to provide downside cushion.

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While we believe overall volatility is likely to stay high, both interest rates and investment grade spreads are at reasonably attractive levels to provide a downside cushion.

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Political risks linger and the M&A picture remains active.

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Volatility has stayed high as political and geo-political concerns linger while the central bank liquidity reduction is underway. 

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Our overall view toward credit has turned decidedly cautious over the last couple months and that includes our long-term favorite.

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Higher volatility when credit spreads are already thin makes even the higher-quality issuers less immune to credit sell-offs. We tactically reduced these bonds to Neutral.

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The net impact of the tax reform is significantly positive to investment grade companies as the interest deductibility change has very little impact.

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The new tax bill will be another tailwind for these bonds as Corporate bond issuance is likely to be reduced going forward.

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These bonds were quite stable during the credit sell-off in November and they remain good candidates for earning the carry.

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If the new tax plan gets passed, Corporate bond issuance will likely decrease while demand remains strong.

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The proposed corporate tax cut and the elimination of interest deduction are likely to reduce Corporate bond issuance while demand should remain strong.

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Corporate leverage is likely to plateau in the second half of the year, helped by a much improved Energy sector.

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Corporate issuance is likely to decelerate due to slower M&A activity in the second half.

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“Lower Risk” signal closed out the “Higher Risk” signal generated five months ago. We’re encouraged by the resilience in risky assets during the oil sell-off and the late surge in global bond yields. We’ve been favorable toward high-grade credit and maintain this view within the fixed income space.

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Higher quality Corporate bonds are big beneficiaries of the goldilocks environment.

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Despite the recent soft patch of data, the economic backdrop remains solid.

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We recommend going up in quality across the whole fixed income spectrum.

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