Articles by Chun Wang, CFA, PRM Director of Multi-Asset Strategies

The demand for safe spreads remains strong and we maintain our Favorable view on these bonds.

We expect the search for yield to continue in the near term and favor Higher Quality credits within fixed income.

We find ourselves in the twilight period where the impact of a rate hike might be waning, while the potential election-year impact might be gaining more influence.

The latest CPI reading is positive for the overall risk rally. We continue to recommend a more patient approach towards inflation. The key market-based drivers of inflation have turned negative. But the recent key economic numbers have mostly exceeded expectations.

The demand for safe spreads is here to stay and we maintain our Favorable view on these bonds.

With global bond yields plumbing new all-time lows, we continue to favor Higher Quality credits within fixed income.

We think the best guide for Brexit is still the 1992 U.K. exit from the ERM. However, most U.K. assets are more expensive than they were back in 1992, and thus more vulnerable to shocks. 

The latest jobs report disappointed but we think it’s a short term aberration as other data still point to a healthy job market. Some of the key market-based inflation drivers, however, have reversed course a bit in the last couple weeks. Patience is still the right strategy.

The demand for safe spreads is still strong and we maintain our Favorable view on these bonds.

The real test for risky assets lies immediately ahead with central bank meetings, the Brexit vote, and the Spanish election later in the month. We continue to favor Higher Quality credits within fixed income.

A stronger dollar and a weaker Chinese yuan dented the prospects for higher inflation in May.

Throw anything at them and bonds can shake it off. The multi-decade march toward ever-lower yields seems unstoppable, not even by the zero line.

Inflation exceeded expectations in April. The more durable inflation measures such as wage inflation are also improving. We characterize the recent improvement in inflation as a relief from the threat of deflation but still quite far from being a catalyst for run-away inflation.

Despite recent improvement in some inflation measures, we are not convinced the war against disinflation has been won. The risk of being too early on the inflation call far outweighs the risk of being too late.

After the last couple months’ strong surge, risky assets are entering a seasonally unfavorable period, with Brexit looming particularly large in the near term. We still favor higher quality credits within fixed income.

More spread compression is likely ahead.

Inflation missed expectations in March.  The three key inflation drivers this year - oil, the Dollar and the Chinese yuan, are all going in the right direction.  The risk of being too early on the inflation call far outweighs the risk of being too late.  Patience is still recommended.

The current environment will likely persist longer than most expect which will put further downward pressure on profit margins. As margins come under pressure, companies increase leverage to prop up ROE. However, the market wants higher duration, not higher leverage.

We are getting more constructive on credits but we are still keenly aware of the highly volatile market environment and would recommend modest exposure to lower quality credits at this point.

More spread compression is likely ahead.