Fixed Income

An analysis of historical data shows that Ba-rated bonds outperform other corporate credit tiers in the long-run on a risk-adjusted basis. That said, today’s fragile macro environment warrants a more cautious allocation. 

Households’ healthy balance sheets do not square with the rise in credit cards and auto loans delinquencies. The tailwinds that have supported higher-income cohorts’ spending have faded, presaging broad-based deterioration in credit performance. 

Brazilian policymakers are stuck between a rock and a hard place. There is no combination of fiscal and monetary policies that can assure decent growth, on-target inflation, a stable exchange rate, and public debt sustainability. We recommend investors maintain an underweight allocation to Brazilian fixed-income markets versus their EM peers and continue shorting BRL versus MXN. We have been bearish on the Bovespa in absolute terms and are now downgrading Brazilian stocks from neutral to underweight within an EM equity portfolio.

The South African government seems to believe that some fiscal retrenchment can stabilize the public debt-to-GDP ratio. But that’s a misconception. The country will need draconian spending cuts to achieve this.

The market reaction to this afternoon’s Fed meeting looks overdone. Investors could be in for a hawkish surprise when it becomes apparent that the Fed won’t ease policy into higher tariff-driven inflation prints.

A falling stock market and sticky bond yields represent the worst of both worlds for investors. We interrogate why bond yields haven’t dropped more given the large selloff seen in equities.

This morning’s employment report showed solid job growth, but recent consumer spending indicators are more concerning. The risk of recession starting within the next few months has increased. We suggest some important indicators for investors to track in the current environment.