Brian Allen, SVP and Andrew Faderewski, VP at C.S. McKee
How can an active investor add value in high grade fixed income with interest rates at all-time lows? We discuss our outlook for the new year, current portfolio positioning and evaluate the role of Core fixed income in risk portfolios. Topics addressed include:
-Base/Bull/Bear case scenario for the economy.
-How will interest rates, yield curve, spreads, rolldown and volatility impact returns?
-Will the rally in Credit continue and which sectors of the market will perform best?
-Will Agency Mortgages outperform Treasuries and other sectors in certain maturity ranges?
-Does Securitized have any more room to run? ABS spreads (Autos and Cards) are at multi-year lows. Is there value in the more esoteric collateral, without undue credit or liquidity risk?
-Value in Agency debentures? Our approach to this often overlooked sector.
-Where is inflation headed and is there value in TIPS? Will the vaccine, reopening, and supply constraints (labor, capex, materials) lead to demand pull and supply constrained boosts to inflation?
-How will the Fed impact returns? Are they really on hold (i.e. not going to raise the FFR) for the next 3-5yrs? When will asset purchases stop? Will there be another taper tantrum as in 2013?
-What can go wrong? Sources of risk for the New Year including lack of fiscal stimulus, disruption in vaccine distribution, trade conflicts, tensions with Iran/North Korea, global trade, tax increases, healthcare reform, etc. Overly bullish investor sentiment and what it means for expected returns.