Fixed Income Asset Allocation Insights (May 2016)

In our monthly report, we examine the state of the fixed income markets and discuss our decision to sell into strength in investment grade credit and add additional securitized exposure.

Robert Vanden Assem, CFA
Head of Investment Grade Fixed Income and Chairman of Fixed Income Asset Allocation Team

In the wake of a rally, we have reduced our investment-grade credit allocation to 35% from 40% and increased our securitized products target allocation to 25% from 20%. A more dovish Federal Reserve, expanded stimulus from the European Central Bank (ECB) and the Bank of Japan (BOJ), and an influx of foreign buyers drove the rally, which also was fueled by relatively low new issuance. Meanwhile, mortgage-backed securities (MBS) spreads remain stable; banks have not lowered mortgage rates despite lower Treasury yields. Since June’s “Brexit” vote and the possibility of a more hawkish Fed could lead to bouts of higher volatility this summer, we look to sell into strength and anticipate that attractive re-entry points will present themselves.

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