High-Yield

Highlights U.S. Corporates: U.S. corporate debt, both Investment Grade and High-Yield, is fully priced for an improvement in economic growth and profits. Tight valuations offer no yield cushion before the expected December Fed rate hike. Maintain a defensive up-in-quality stance on U.S.…

Highlights Defaults: The default outlook is improving alongside a brighter forecast for economic growth. The corporate default rate will fall from 5.4% to close to 4% during the next 12 months. Valuation: The low starting point for spreads means the risk/reward trade-off in junk bonds remains…

Highlights A poor fundamental backdrop for high yield is being offset by easy monetary conditions. A prolonged shallow uptrend in corporate defaults - and therefore spreads - is most likely. The relative performance of equities versus corporate credit has not been distorted by monetary policy…

We are pleased to share this <i>Special Report</i> rolling out our Global ETF Strategy (GETF) service's model ETF portfolios.
We are in the latter stages of developing the digital interface that will serve as the central nervous system for the GETF service and are excited to be rolling it out next month. In the meantime, the GETF team has embarked on its regular bi-weekly publication schedule. An ETF Primer <i>Special Report</i> will follow on October 26. It will discuss ETF architecture, operation and trading, and is meant to help investors determine how they can best deploy ETFs to accomplish their tactical and strategic goals.

Our Treasury yield fair value model suggests that the 10-year Treasury yield has an additional +19bps of upside. Stay at below benchmark duration.

Our <i>Fourth Quarter Strategy Outlook</i> presents the major investment themes and views we see playing out for the rest of the year and beyond.

There are two key risks that could derail a bear-flattening of the yield curve. The first is a Trump election victory, the second is a flaring of stress in the non-U.S. banking sector.

It's hard to make a case for attractive returns from any asset class over the next year. We dial down risk a bit but ending our overweight on junk bonds. Investors should pick up yield where they can but without taking excessive risk.

Investors stand to benefit from Czech koruna revaluation versus the euro and also from positive carry, while waiting for the central bank to remove the exchange rate floor. Go long CZK / short euro. Economic fundamentals and policy divergence between Poland and Hungary point to a stronger zloty versus the forint. Go long PLN / short HUF.

The fiscal spending impulse in China is still positive but receding. The nation's productivity and potential GDP growth are bound to decline due to a rising role of government in capital and resource allocation. Hence, cyclical stabilization could well be overwhelmed by a structural slowdown. Another bubble is forming in China, this time in the corporate bond market. The amelioration in Korean and Taiwanese exports is due to the technology sector/semiconductors, and does not reflect broad-based improvement in global trade.