Fed Shift from "Put" to "Collar" Bodes Well for Spread Product

PGIM Fixed Income

February 2019

Robert Tipp, CFA, Managing Director, Chief Investment Strategist, and Head of Global Bonds

The Federal Reserve appears to have implicitly adopted a “market-collar” approach, becoming more accommodative when markets become too risk averse (the well-recognized “Fed put”) and removing accommodation if markets become too ebullient (the “Fed cap”). In this paper, PGIM Fixed Income discusses the result of the Fed's "market-collar", which may well be a prolonged economic expansion with perhaps a volatile, but extended, cycle for spread-product outperformance versus government securities.