Macro Monitor

Overall, the impact of balance sheet reduction on interest rates is weak, at best. Inflation is a much bigger longer-term driver of interest rates.

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We believe the “Goldilocks” environment is still intact. Earn the carry.

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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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If we look beyond the daily noise from North Korea, the global macro picture still fits our “Goldilocks” view pretty well.

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With the “Goldilocks” scenario still intact, we believe earning the carry is the right approach and high grade credit fits the bill.

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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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The U.S. 10-year yield has been stuck in a tight range. Without new major catalysts, we expect the 10-year rate to be collared in two ranges, first 215-240 and, if this is broken, the wider range of 200-260, which is more significant and much harder to break.

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Most risk markets have tracked their 2017 time cycle patterns well, but what really stands out is the risk of an autumn correction across all these markets. Caution is warranted going forward.

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With neither inflation nor recession an imminent threat, the “Goldilocks” scenario remains intact. We continue to view high grade credit favorably within the fixed income space.

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

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Despite the late reversal in rates and the yield curve, the flattening trend of the yield curve remains intact. The fact that longer-term bond yields have fallen while the Fed is raising rates brings back memories of the “bond conundrum” episode during 2004-2006.

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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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“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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The best interpretation of the current cross-asset message is the scenario of goldilocks, and there are reasons to believe this is a possible scenario for the near term.

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The global risk rally is broad-based enough to justify a favorable credit view and we still believe higher quality credit offers better reward/risk.

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

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The dominant theme in the last few weeks has been the notable weakness in macro-economic data.

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Last month, we recommended going up in quality within fixed income and we maintain this cautious stance for the time being.

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

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The tapering of QE, clearly a tightening move, complicates the definition of the current tightening cycle.

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