Macro Monitor

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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The calm appearance of the 10-year yield masked a big curve-flattening move that has accelerated the last few months.

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The index ticked up on the back of higher VIX, a High Yield credit mini sell-off, and EM underperformance. We are turning a bit more cautious toward credit but still recommend safe spreads within fixed income.

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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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Our data shows the traditional Phillips Curve relationship between the unemployment rate and wage inflation still holds.

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The range-bound interest rate action provides a friendly environment to earn the carry, through moderate duration and high grade credit exposure.

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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 mini bond market sell-off in September was fueled by a string of positive developments, which should support the case for further upside in the Economic Surprise Index in the fourth quarter.

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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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