Fixed Income Asset Allocation Insights: More volatility may be on the cards

Mixed economic data and a more hawkish Fed stance are creating potential for heightened volatility and more attractive entry points in spread sectors.

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

Our target allocations remain unchanged. We continue to favor investment grade credit and securitized products and remain underweight on high yield and emerging markets (EM) debt. Recent comments by Federal Reserve Chair Janet Yellen and Vice Chair Stanley Fischer indicate that the Fed sees diminished downside risks to the US economic outlook and a stronger case for a rate increase. However, recent economic releases paint a somewhat different picture. GDP growth in the second quarter was revised down to 1.1% from 1.2%. Inflation expectations remain stubbornly low and well below the Fed’s 2% target. Mixed economic data and a more hawkish Fed stance are creating potential for heightened volatility and more attractive entry points in spread sectors.

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