/perspectives/portfolio-strategy/fixed-income-outlook-risk-and-relative-value

Risk and Relative Value in a Time of Change

In our fourth quarter 2016 report, investment team leaders discuss market conditions heading into a new administration and likely Fed rate hikes.

December 14, 2016


Report Highlights

The surprise end to the fractious U.S. election season leaves many questions unanswered, but we remain alert to the possible impact of resurgent fiscal policy. Several market positives should support asset performance into 2017. The domestic economy just turned in the highest growth rate in two years, early indications point to a strong Christmas selling season, corporate earnings are turning higher or recovering, and the energy sector is stabilizing with the oil market recovery. An investor’s best option in an environment like this is to sell into strength and buy on weakness.

  • We believe it is highly likely the Fed will raise rates three, and possibly four, times in 2017.
  • A tightening labor market, rising inflation, and a new administration suggest higher economic growth and inflation, upward pressure on rates, and Fed rate hikes.
  • We continue to see strong demand from foreign investors hungry for yield supporting the investment-grade market.
  • Spreads on collateralized loan obligations have tightened significantly, particularly as investors have been allocating more to floating rate assets.
  • Rising pension liabilities remain a concern, but strong technicals support the municipal market.
 
 

FEATURED PERSPECTIVES

June 17, 2019

Managing While Risk Premia Shrink

The Federal Reserve’s policy pivot has supported a rally in most credit sectors, but investors should worry about late cycle excesses.

May 23, 2019

U.S.-China Trade War: The New Long March

Beijing is preparing for a protracted standoff as the U.S.-China trade war ramps up.

May 17, 2019

Quantifying the Credit Risk and Default Runway

After the recession starts, high-yield bond and bank loan issuers have at least a 12-month runway before we experience a large wave of defaults.


VIDEO

Second Quarter 2019 Fixed-Income Outlook 

Second Quarter 2019 Fixed-Income Outlook

Portfolio Manager Steve Brown and Brian Smedley, Head of the Macroeconomic and Investment Research Group, explain that while the Federal Reserve's pause in policy has supported a rally in most credit sectors, investors should worry about excesses continuing to build this late in the cycle.

Core Fixed-Income Conundrum 

Solving the Core Conundrum

Anne Walsh, Chief Investment Officer for Fixed Income, shares insights on the fixed-income market and explains the Guggenheim approach to solving the Core Conundrum.







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