Fixed Income Asset Allocation Insights: Uncertainty Creates Buying Opportunities

Uncertainty about US tax proposals, heath care, and infrastructure spending might be creating buying opportunities for risk assets

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

On 9 May, St. Louis Federal Reserve President James Bullard acknowledged that declines in inflation expectations and slower labor market improvements imply that the Fed’s rate increase plans may be too ambitious. We view his comments as generally indicative of the narrative in credit markets today. The potential for volatility remains, as investors react to uncertainty about US tax proposals, heath care and infrastructure spending, as well as to China’s policy tightening. However, this may be creating buying opportunities for risk assets because any significant slowdown is likely to be met with a more dovish Fed. Consequently, we remain overweight high yield (40%) and investment-grade credit (25%), neutral (20%) emerging markets debt, with non-dollar positions hedged back to the US dollar.

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