Fixed Income Asset Allocation Insights

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The Fed’s Patience Casts a Glow on Credit Markets 

Amid a backdrop of progress on US-China trade talks, stable or better-thanexpected corporate earnings, and most important, a dovish pivot by the Federal Reserve, the first five weeks of the year have seen rallies in Treasuries, credit spreads, equities, and other risk assets, producing strong total returns across many fixed income asset classes. Demand for credit has surged based on Fed reassurance that it would be flexible and “patient” in its actions. As a result, we have decided to reduce our allocation to emerging markets debt to 15% from 20% and increase our allocation to securitized products to 25% from 20%. While continuing to find attractively priced credits within investment grade, high yield, and emerging markets debt, we seek to reduce credit-spread and interest-rate durations overall.