All the Credit, Ep. 37
A look at the latest banking crisis, with discussion on the potential for more bank runs, potential regulatory responses, and more.
Second Quarter 2023 Market Outlook
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The unraveling in the U.S. banking sector affirmed our sense of foreboding and led us to recalibrate the balance of risks in our outlook. But despite all the chaos of the first quarter, one thing is looking clearer: the post-COVID bear market has given way to a new bull market in bonds. Explore our second quarter market outlook for insights into the potential path ahead for the global bond market, assessments of regional macro environments, and sector-by-sector outlooks with associated opportunities.
Key Convictions & Investment Themes
Learn more about the three key themes that shape our second quarter fixed income outlook:
On the face of it, Q1 brought bad news
A banking crisis joined an economic backdrop already at risk from central bank rate hikes. Economies will now have to cope with the frictions and the long tail of the crisis. The culmination of risks, including intensifying global competition and the dire consequences of the U.S. debt ceiling showdown, could bring a U.S. recession—and its global knock-on effects—even closer.
Yield as destiny
There are periods when negative developments can be market positive. The cumulative impact of higher rates and the mounting risks from Q1 are negatives for growth; point taken. But once yields reach elevated levels—thanks to last year’s bear market—and the economy begins to slow, bonds can be quite productive as observed in the following table of returns. Hence, the game is still on for the bond market.
Volatility, Perspective, and Dispersion
Confusion and volatility are disorienting, yet they provide a reminder to maintain a long-term perspective. The sector outlooks that follow clearly delineate short-term effects from long-term opportunities. An array of dispersion throughout the sectors—from property types to emerging market spread levels—enhances the potential for alpha generation through sector rotation, issue selection, term structure positioning, and foreign exchange exposure.
Additional Insights
The Bank Blowup: Implications and Opportunities
Our experts assess the state of the global banking sector and discuss what investors might look for going forward.
The SVB Fallout—from the Fed to Geopolitics
The abrupt failure of Silicon Valley Bank (SVB) and the renewed pressure on Credit Suisse are the latest in a series of global shocks affecting the capital markets.