Stick With Quality as Economies Slow

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Fixed Income Asset Allocation Insights 

With credit spreads now largely in a fair valuation range, our current allocations remain unchanged. After cutting the federal funds rate by the anticipated 25 basis points (bps) and lowering the target range to 1.5%-1.75%, the Fed intends to wait and see before resuming further rate cuts. The potential for a US-China trade cease fire and brighter prospects for a Brexit deal have buoyed investor sentiment, as did less pessimism over global growth. While the Eurozone remains weak, Asia appears to have stabilized and the US economy grew by a better-than-expected 1.9% in the third quarter as consumer strength continued. As a result, Treasury yields have moved higher and the yield curve inversion reversed. Earnings results for 3Q, so far, are in line with expectations, leading us to believe the most likely scenario is a slowdown, not a recession. We therefore maintain our preference for higher quality credits.