Fixed Income

There is a considerable dichotomy between the EM equity universe and EM corporate credit markets. EM credit markets remain mispriced. EM currencies are at risk of renewed depreciation. This will push sovereign and corporate spreads, as well as high-yielding domestic bond yields, higher. Continue underweighting Indonesian stocks, sovereign credit and domestic bonds within their respective benchmarks.

Within an overweight allocation to Euro Area corporates versus U.S. corporates, favor single-B rated Euro Area High-Yield and Euro Area Investment Grade sectors that offer higher duration-adjusted spreads.

The next rate hike is unlikely before September, despite the rebound in April retail sales. The dollar could suffer for a time, but the long-term bull market is intact.

The reflation rally continues. Despite our bearish outlook for the year, we think the risks of the current rally lie to the upside given China's redoubling of stimulus at the expense of reform. Populist troubles are picking up in Europe, but we maintain our positive structural view and note that the migration crisis is slackening. Rather, the greatest risks of populism continue to flourish in the Anglo-Saxon world with Brexit and Trump.

Preliminary results from the Philippine elections suggest that policy uncertainty and discontinuity will challenge the reform trajectory of a country with one of the best macroeconomic backdrops in the emerging market universe.

The U.S. dollar has fallen to almost 5% below its 2016 peak. In this <i>Special Report</i> we explore the impact of a weaker dollar on key U.S. fixed income markets.

To cheaply hedge against a "Leave" vote, go long U.K. inflation protection, reduce exposure to U.K. corporate debt, and position for a steepening of the Gilt curve.

We continue to view the rally in equities and high-yield corporate bonds since February as a high-risk affair.

We discuss the technical and political problems with helicopter money, plus the near-term outlook for the euro area economy and markets.

Colombia's structural growth outlook is superior to many other developing economies. In the near-term, however, Colombia's economy is set to weaken materially. Upgrade Colombian equities and sovereign credit to neutral versus EM benchmarks. Continue betting on further yield curve flattening/inversion and buy 10-year domestic bonds on weakness. Go long Colombian bank stocks / short Peruvian banks, and stay short the peso.