The Brexit Beat - Phase One is Done
Nearly three and a half years after the Brexit referendum and all of the parliamentary drama in 2019, the UK finally legally exited the EU on Friday, January 31. The UK has now entered an 11-month transition period that ends December 31, 2020.
Wuhan Coronavirus: Key Variables to Watch
There is no shortage of alarming and depressing news when reading about the Wuhan coronavirus. The World Health Organization has declared a global health emergency. There are still many unknowns, but there are some indications that the outbreak may not be as severe as our worst fears. Here’s what I’ll be watching as the outbreak unfolds.
First Quarter Investment Outlook
2020 is starting off with a strong risk appetite, generally fair-to-rich asset valuations, and accommodative monetary policy from the major central banks. If the current expansion can stay on track, we anticipate another year of positive risk-asset performance.
2020 Sector Outlook: US Municipals
The US municipal market registered strong performance in 2019, driven by record demand from individuals and constrained supply of tax-exempt issuance. Both factors grew out of changes legislated in the 2017 Tax Act. As we enter 2020, valuations appear tight versus Treasurys and fair versus corporates and risk assets generally.
2020 Sector Outlook: Mortgage and Structured Finance
Looking ahead, we believe the global economic environment will remain supportive for securitized sectors despite potentially slowing economic growth. In the US, we believe strong fundamentals, including robust wage growth and healthy household balance sheets, will provide solid support for real estate and consumer-related credit.
2020 Sector Outlook: Emerging Market Credit, Local Debt and Currencies
We expect emerging market (EM) fixed income asset classes to continue to perform well in 2020. Though the sector appears to be starting from less attractive valuations than a year ago, in a low-yielding world, we see opportunity for relative performance in credit and local rates and a tactical tailwind for EM currencies.
2020 Sector Outlook: European Investment Grade Corporate Credit
We expect European investment grade bonds to post slightly positive excess returns in 2020. We believe the sector stands to benefit from healthy supply and demand balances, likely offsetting tight valuations and weakening fundamentals.
2020 Sector Outlook: US Investment Grade Corporate Credit
The US investment grade (IG) corporate bond market is coming off an exceptionally strong year. Declining interest rates coupled with sharply narrower credit spreads contributed to strong absolute and relative returns.
2020 Sector Outlook: Bank Loans
Markets appear to expect the Federal Reserve to hold interest rates steady during 2020. In this environment, we think the outflows seen in leveraged loan mutual funds are likely to abate, and possibly change directions.
2020 Sector Outlook: High Yield Corporate Credit
A combination of spread compression and reduced US Treasury base rates contributed to double-digit gains in the high yield corporate credit sector in 2019. However, unlike many years with similar returns, lower-quality, CCC-rated credits meaningfully lagged their higher-quality counterparts. At this point in the extended credit cycle, investors appear wary about the performance of lower-quality credits.
What’s Next After the US Airstrike in Baghdad?
Brace yourselves. In an unexpected move on January 3, the United States carried out a drone strike that killed a key military figure in Iran, General Qassem Soleimani. Soleimani was the head of the Iranian Revolutionary Guard Corps' Quds Force, the architect of Iranian military influence across the Middle East and the second most powerful figure in Iran after the Grand Ayatollah Khamenei.
Secured Funding Markets: Fed Acts but No Quick Fix
It became abruptly apparent in September, when overnight repo rates surged to near 10%, that liquidity in the banking system had suddenly become insufficient. While a confluence of factors (corporate tax payments, settlement of Treasury auctions, etc.) ultimately tipped the secured funding market into imbalance, it was policy choices—monetary and regulatory—that unwittingly pushed this market to the brink of illiquidity.
Year in Review: Our Most Popular Posts of 2019
As we close out 2019, we took a look back at the year’s most popular blog posts. In a year full of attention-grabbing headlines, breaking news and viral tweets, all of these posts share a major theme—they look beyond the headline and examine the underlying facts.
The Brexit Beat - The End of the Beginning
What happened? UK Prime Minister Boris Johnson and the Conservative Party won yesterday’s election in a landslide, taking 365 seats. With a majority of 80 seats, the Conservatives have their largest majority since 1987. Ultimately, the country wanted to “Get Brexit Done” too.
Global GDP Themes and Forecasts (Infographic)
We’re seeing early signs of stabilization in global manufacturing. Central banks appear committed to supporting the global economy through easier monetary policy. Market sentiment has become more optimistic. We’re optimistic too. However, even if a solid manufacturing recovery materializes, we are not expecting global growth to accelerate substantially in 2020.
Are China's Pork Pains Inflated?
In China, pork prices are up 70% (!) year over year. A swine fever outbreak has crippled the pork industry and caused a surge in pork prices. Pork prices are a main driver of China’s Consumer Price Index (CPI) increase. CPI inflation could reach 4% by year-end, one percentage point above the People’s Bank of China’s 3% target.
The Brexit Beat - Some Certainty Amid Uncertainty
Never a dull moment in UK politics. The EU finally granted the UK a Brexit extension to January 31, with the option to exit December 1 or January 1 if the Withdrawal Agreement Bill is ratified earlier. January 31 is the most likely date for Brexit.
The Brexit Beat - Boris vs. Parliament: From Optimism to More Uncertainty
What happened? UK Parliament held two key Brexit votes yesterday. UK Prime Minister Boris Johnson won the first vote, support for the Withdrawal Agreement Bill in principle, by a 30-vote margin (329 vs. 299). But he lost the second vote, the “programme motion” to fast-track Brexit law, by a 14-vote margin (308 vs. 322).
Inching Toward A Deal: What’s Next in the US-China Trade Negotiations
The US and China surprised me with their announcement of a small, “phase one” trade deal last week. I had thought any kind of deal would be a long shot, so I view this development as good news. Here’s a summary of the deal and what could happen next.
Bank Loans: Don't Swipe Left
Losing interest in bank loans now that rates have begun to fall? It’s a common gut reaction for those who have a narrow view of loans as a tactical play on interest rates. However, loans have other virtues worth considering in the current environment. Here are two factors that might have you rethinking your instinct to swipe left.
Friday Fact: US-China Trade Data Measures the Damage
The fact that US trade with China has declined shouldn’t be a surprise. But how bad is the damage? According to the US international trade report for July, released September 4, US exports to China have declined at double-digit rates for the past 12 months. This is the longest sustained contraction in the last 20 years.
Data Consistent with Another US Mini-Cycle
While the longest economic expansion in US history continues, investor skepticism regarding its staying power seems to be rising. In our view, indicators suggest the economy is in the downturn phase of a mini-cycle—a period of slower economic growth but not outright GDP decline.
Global GDP Themes and Forecasts (Infographic)
Global economic activity indicators are signaling that the manufacturing-driven slowdown has not yet run its course. However, we remain optimistic that activity will pick up in the latter half of 2019 without a recession in the US or China. Read on for a visual snapshot of growth themes across the globe.
China: Currency Manipulator or Misunderstood?
On August 5, 2019, the US dollar-Chinese yuan (USDCNY) exchange rate broke above 7.0 yuan to the dollar, an important threshold for many market watchers. Not surprisingly, China and the US had very different takes on the CNY weakness.
Five Reasons Why China is Unlikely to Devalue the Renminbi
For years, President Trump has accused China of purposely devaluing the renminbi to boost exports. With trade and political tensions boiling over, the question of whether China will devalue the renminbi often comes up.
Only the Loan-ly: What You Should Know About Loan-Only Structures
Loan-only capital structures have gotten some negative attention lately. Critics caution that loan-only structures leave senior-loan investors vulnerable because there is no subordinated debt below them if the company goes bankrupt.
Maybe Inflation Didn't Ease: A Look at Trimmed-Mean Inflation
"Core" PCE inflation year over year eased from a recent high of 2.04% last July to 1.55% in March. This easing has made some market participants speculate that the US Federal Reserve will ease up on monetary policy. However, there’s more than one way to measure inflation.
Global Growth Themes and Forecasts (Infographic)
The global economy appears to be heading out of a soft patch within its continued expansion. In the coming months, we expect a pickup in economic activity, stable global growth, moderate-to-low inflation pressure and accommodative monetary policy across most regions. Read on for a visual snapshot of growth themes across the globe.
Second Quarter Investment Outlook
The road ahead for risk assets looks pretty smooth right now. But valuations have already baked in a fairly rosy macroeconomic outlook. Markets are anticipating a rebound in growth and continued economic expansion. Is that what we will get?
Subprime Auto ABS: Focus on Fundamentals, Not Fear
The subprime consumer sector has come a long way since the dark days of the financial crisis. Borrowers, lenders and issuers have made improvements, but still subprime can’t seem to exorcize its reputational demons. I’ve seen a lot of news coverage recently that reinforces investors’ worst fears.
My Generation: What an Aging Population Means for Bank Stocks
It’s no secret that people are living longer. Falling fertility rates indicate that, on average, global populations are getting older. This “demographic tsunami” has already hit Japan, and continental Europe is not far behind.