Key takeaways
Market insights at a glance
As global growth slows amid tariff uncertainty, geopolitics and fiscal issues, inflation is trending toward central bank targets. Despite these challenges, fixed-income fundamentals remain strong, supporting a constructive outlook. The yield curve steepening seen globally is driven by factors such as fiscal concerns. Valuations remain rich across a variety of non-Treasury sectors due in part to strong fundamentals. We see attractive relative value in certain structured products like CLOs and CMBS. Active management remains crucial in fixed-income markets.
This quarterly summary is intended to aggregate the Firm’s current overall views and present an at-a-glance dashboard covering the following:
- Growth: US growth has slowed but remains positive in line with our base case view. We are keeping an eye on any further deterioration in growth or signs of a possible recession.
- Inflation: Global inflation is expected to keep trending downward, ultimately converging toward central bank targets.
- Rates: US Treasury yields have moved lower in response to slowing US growth, a potentially weaker labor market and the beginning of the rate cut cycle by the Fed.
- Monetary Policy: The Fed and other major central banks have cut rates in response to declining inflation, slowing growth and softening labor markets.
- Credit Markets: Credit spreads are considered tight, but an overweight position is maintained due to supportive corporate fundamentals and a strong technical backdrop.
- Labor Markets: The US labor market has softened, with unemployment up slightly primarily due to increased labor supply, indicating normalization rather than contraction.
Fixed-Income Outlook: Labor Market Shifts Drive Credit Opportunity
The current macroeconomic landscape is characterized by significant shifts in global labor markets driven by cyclical and secular factors. The US labor market has softened, with a modest rise in unemployment and moderation in wage growth, indicating normalization rather than contraction. The eurozone has achieved a historically low unemployment rate, driven by recoveries in Southern economies and immigration. These labor market dynamics will have profound effects on politics, economic growth, central bank policy and capital markets.
The macroeconomic environment is complex, with sub-trend growth, softening labor markets and declining inflation prompting central banks to examine and adjust monetary policies. Credit markets present opportunities, with investment-grade credit fundamentals remaining strong and structured products like CLOs and CMBS offering relative value. Active management is crucial in navigating these complex dynamics. By closely monitoring economic trends, labor market dynamics and credit market fundamentals, investors can make informed decisions to optimize their portfolios. The current environment demands careful analysis and adaptability to navigate the challenges and capitalize on opportunities in fixed-income markets.
WHAT ARE THE RISKS?
All investments involve risks, including possible loss of principal. Past performance is no guarantee of future results. Please note that an investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.
Fixed-income securities involve interest rate, credit, inflation and reinvestment risks and possible loss of principal. As interest rates rise, the value of fixed income securities falls. Low-rated, high-yield bonds are subject to greater price volatility, illiquidity and possibility of default.
Active management does not ensure gains or protect against market declines.
International investments are subject to special risks, including currency fluctuations and social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets. Investments in companies in a specific country or region may experience greater volatility than those that are more broadly diversified geographically. The government’s participation in the economy is still high and, therefore, investments in China will be subject to larger regulatory risk levels compared to many other countries. There are special risks associated with investments in China, Hong Kong and Taiwan, including less liquidity, expropriation, confiscatory taxation, international trade tensions, nationalization, and exchange control regulations and rapid inflation, all of which can negatively impact the fund. Investments in Taiwan could be adversely affected by its political and economic relationship with China.
Commodities and currencies contain heightened risks that include market, political, regulatory, and natural conditions and may not be suitable for all investors.
US Treasuries are direct debt obligations issued and backed by the “full faith and credit” of the US government. The US government guarantees the principal and interest payments on US Treasuries when the securities are held to maturity. Unlike US Treasuries, debt securities issued by the federal agencies and instrumentalities and related investments may or may not be backed by the full faith and credit of the US government. Even when the US government guarantees principal and interest payments on securities, this guarantee does not apply to losses resulting from declines in the market value of these securities.
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