Throttling Back on Risk Before the Cycle Shifts

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2019 Fixed Income Outlook

• The current cycle has become elongated, with the European sovereign debt crisis and the recent commodity collapse as two recent examples of “mini-cycle” selloffs from which the market bounced back reasonably quickly.
• In 2019, fixed income investors will need to navigate anticipated cycle changes of expected lower returns, greater volatility, and a return to global rate normalization, as well as the potential for unexpected tail risks.
• We advocate for a modest dialing back of risk in each segment, reducing high beta exposures and incrementally lowering duration risk profiles, particularly in developed markets outside the US, as well as focusing on higher quality credits within segments.