WHITE PAPERS

WHITE PAPERS

The U.S. Automotive Industry: Downshifting but Still Moving Forward

The U.S. Automotive Industry: Downshifting but Still Moving Forward
PGIM Fixed Income   PDF Opens in a new window

In addition to the mounting cyclical challenges confronting the U.S. automotive industry after years of strong growth, automakers and suppliers also face an uncertain future made up of rapid technological change and the potential full-scale realignment of the personal ownership business model. This paper by PGIM Fixed Income analyzes current auto cycle fundamentals and discusses the risks and opportunities in the nascent era of increasing electrification, autonomy, and shared mobility.

Letters from Zambia and Kenya

Letters from Zambia and Kenya
PGIM Fixed Income   PDF Opens in a new window

In this paper, Giancarlo Perasso, Lead Economist CEEMA, Global Macroeconomic Research Team, shares his findings from a recent trip to Lusaka, Zambia and Nairobi, Kenya.

University and Hospital Municipals: Taxable Supply Continues at a Steady Clip

University and Hospital Municipals: Taxable Supply Continues at a Steady Clip
PGIM Fixed Income   PDF Opens in a new window

The changing economics facing higher education and not-for-profit health care have been a catalyst for sustained issuance in these taxable municipal bond sectors. In this paper, we explore the incentives for universities and hospitals to issue taxable over tax-exempt debt, the rationale for continued issuance in these sectors, and the advantages of diversification into municipal credit for taxable debt investors.

A Time Bomb It’s Not

A Time Bomb It’s Not
PGIM Fixed Income   PDF Opens in a new window

The ongoing expansion of the BBB-rated segment of the corporate bond market often draws comparisons to a disaster waiting to happen. Some theorize that when the speculated turn in the credit cycle occurs, the consequent credit-rating downgrades will swamp the high yield market. Yet, this is an oversimplified generalization. Certain companies have several levers to pull in order to comfortably manage their debt through the entirety of the credit cycle. In addition to exploring these options, this paper also provides current examples of BBB-rated credits that have the wherewithal to reduce their recently expanded leverage levels.

Brexit Developments: Deal or Delay

Brexit Developments: Deal or Delay
PGIM Fixed Income   PDF Opens in a new window

Despite shifting political dynamics and uncertainty about the sequencing of upcoming events, the base case remains that a hard Brexit will be avoided. That leaves two options as the likeliest scenarios: Prime Minister May’s deal or a longer extension of Article 50, which consequently results in a soft Brexit.

The Fed Squares the Dots—Markets Yet to Be Convinced

The Fed Squares the Dots—Markets Yet to Be Convinced
PGIM Fixed Income   PDF Opens in a new window

The drop in the Federal Reserve’s expected median path for the fed funds rate was large in magnitude and impressive in breadth as nearly every participant appears to have dropped his or her “dot forecasts” for the fed funds rate for 2019, 2020, and 2021. Although the markets’ conviction that the Fed will be cutting rates grew after the meeting, it may not be easily convinced that the economy is back on easy street. Instead, the markets are reacting as if we are in a late-cycle investment environment, which gets riskier for stocks as growth ebbs, but more positive for bonds as the rate cycle has presumably crested.

ECB—Surprisingly Dovish on Several Counts

ECB—Surprisingly Dovish on Several Counts
PGIM Fixed Income   PDF Opens in a new window

The ECB surprised the market with a package that is designed to impress and stamp out skepticism that the central bank may be out of ammunition, with policy rates already in much-criticized negative territory and having just stopped its bond purchases at year-end.

The LIBOR Transition

The LIBOR Transition
PGIM Fixed Income   PDF Opens in a new window

Planning for the market’s transition from the London Interbank Offered Rate (LIBOR) to the Secured Overnight Financing Rate (SOFR) has accelerated recently, but substantial uncertainty remains as to how and when the conversion of nearly $370 trillion of financial products will occur. This paper addresses the progress to date, critical future milestones, and concerns regarding the sufficiency of SOFR as an adequate LIBOR replacement.

The Fed’s Challenge of Squaring the Dots

The Fed’s Challenge of Squaring the Dots
PGIM Fixed Income   PDF Opens in a new window

Since December 2018, the Federal Reserve’s change in stance stabilized the markets, breaking a cycle of tightening financial conditions that threatened the well-being of the mature economic expansion. This paper looks at the message that the Fed heard from the markets late last year; how the Fed responded; the upcoming task of “squaring the dots” (i.e., the projections for the fed funds rate) at the upcoming March meeting; and, perhaps most important, why the Fed’s late-stage fine-tuning has taken on such importance this cycle.

Applications of ESG to Securitized Assets

Applications of ESG to Securitized Assets
PGIM Fixed Income  PDF Opens in a new window

Commonly cited ESG concerns, such as labor practices, corruption, corporate governance, and environmental stewardship, do not prominently feature in many assets common to securitization. However, such interpretations rely on an overly narrow perspective, and ESG considerations—particularly social and governance issues—are integral to successfully investing in securitized assets over the long term. In fact, as we discuss in this paper, we believe that securitized asset investors who ignore ESG considerations are failing to heed some of the most important lessons of the global financial crisis.

Seeking Spread Along Steep High Yield Curves

Seeking Spread Along Steep High Yield Curves
PGIM Fixed Income   PDF Opens in a new window

While many sectors have partially recovered since the worst of the December 2018 market volatility, a shift in the U.S. leveraged finance market continues to present attractive opportunities. By selling short-dated issues that have experienced solid spread compression and slightly extending along particularly steep spread curves, investors can pick up significant spread in what is still a stable economic backdrop.

Outlook 2019: Geopolitical Experts Discuss Today's Global Threats and Opportunities

Outlook 2019: Geopolitical Experts Discuss Today's Global Threats and Opportunities
PGIM Fixed Income   PDF Opens in a new window

In this video, Nathan Sheets, PGIM Fixed Income’s chief economist and head of global macroeconomic research, discusses the current geopolitical climate and shares ideas on China, corporate debt, technology, and productivity.

Fed Shift from ‘Put’ to ‘Collar’ Bodes Well for Spread Product

Fed Shift from ‘Put’ to ‘Collar’ Bodes Well for Spread Product
PGIM Fixed Income   PDF Opens in a new window

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”). The result of the Fed’s “market collar” may well be a prolonged economic expansion with perhaps a volatile, but extended, cycle for spread-product outperformance versus government securities.

Venezuela at the Crossroads

Venezuela at the Crossroads
PGIM Fixed Income   PDF Opens in a new window

Nicolas Maduro’s rule appears to be approaching its end, but the exact timing and path of the political transition remains uncertain despite the strong momentum behind the anti-government protest. Geopolitical rivalries, foreign influences, military interests, and doubts about the protest movement’s staying power suggest that the restoration of democracy in Venezuela will likely be hard to achieve without a strong diplomatic and economic commitment by the U.S. and its allies. This paper provides an update on the current situation in Venezuela, provides potential market implications, and explores factors for a successful transition.

The Outlook for the Trade War: Assessing President Trump’s Next Move

The Outlook for the Trade War: Assessing President Trump’s Next Move
PGIM Fixed Income   PDF Opens in a new window

With the trade negotiations between the United States and China appearing to gain traction, it’s useful to step back and consider the outlook and prospects for the trade war. What are the key factors shaping President Trump’s choice set? What are some possible outcomes for the year ahead? And what does it mean for markets? This paper includes our observations regarding President Trump’s incentives and some lessons that we have drawn from his actions over the past year.

Africa’s Rising External Debt, Part 1: A Tempest in a Teapot?

Africa’s Rising External Debt, Part 1: A Tempest in a Teapot?
PGIM Fixed Income   PDF Opens in a new window

The growth of government debt in Africa has accelerated in recent years, giving it renewed prominence in the debate amongst investors, international organizations, and policy makers. A major point of contention among the investor community is whether African countries risk falling into the same problems that they faced in the late 1990s-early 2000s and if another round of debt restructuring will consequently be needed. In this paper, we analyze the external debt situation and outlook for Africa. We conclude that market chatter has prematurely sounded the alarm on a potential HIPC2 and African countries have a viable path forward for bolstering their debt-servicing capacities through expanded tax bases. We also highlight how the current protectionist wave could affect African exports and negatively impact their ability to service external debt.

Is Your LDI Strategy Recession-Ready?

Is Your LDI Strategy Recession-Ready?
PGIM Fixed Income   PDF Opens in a new window

In this paper, PGIM Fixed Income describes the key risks to a U.S. corporate pension plan’s funded status—declining long-term interest rates, tightening long-dated corporate spreads, credit migration, and falling risk assets—and shares practical steps plan sponsors can take now to protect funding levels ahead of the next recession.

Brexit Update—The Path(s) Ahead as Deadlines Loom

Brexit Update—The Path(s) Ahead as Deadlines Loom
PGIM Fixed Income   PDF Opens in a new window

Nearly two and a half years after the initial vote, the Brexit process—as well as the country’s deep political divisions—remain as inscrutable and intractable as ever. This brief note addresses the recent wrinkles in the process, where the situation currently stands, and the hurdles that lie ahead.

Sector Outlook

Sector Outlook
Jennison Associates   PDF Opens in a new window

Jennison provides insights on recent sector performance and positioning moving ahead.

Technology Stocks: Reasonable Valuations

Technology Stocks: Reasonable Valuations
Jennison Associates   PDF Opens in a new window

In this commentary, Jennison explains why it believes valuations for the tech sector are still reasonable even after the recent climb in prices for tech stocks.

Secular Growth Juggernauts Shine as S&P 500 Earnings Growth Slows

Secular Growth Juggernauts Shine as S&P 500 Earnings Growth Slows
Jennison Associates   PDF Opens in a new window

Jennison shares its latest views on key secular growth themes it expects to drive markets in 2019 and beyond, its views on some of the key players in these industries, and how those companies fared this earnings cycle.

A Trifecta for EM Equity Outperformance?

A Trifecta for EM Equity Outperformance?
QMA   PDF Opens in a new window

QMA discusses why the global macroeconomic backdrop for EM has improved and why there is a case for EM outperformance.

On the Markets

On the Markets
PGIM Investments   PDF Opens in a new window

Our quarterly chart series provides a data-centric view of key macroeconomic variables, market performance, and major trends in the equity, fixed income, and real assets markets.

Weekly View from the Desk

Weekly View from the Desk
PGIM Fixed Income   PDF Opens in a new window

Access our latest market overview on the state of the markets, the economy, and current events that are affecting the investment world.

Some content is provided by the Strategic Investment Research Group (SIRG), a unit of PGIM Investments, LLC, and a research unit of Prudential Financial. SIRG provides research, analysis and due diligence on investment management firms and the vehicles and strategies they offer.

Consider a fund's investment objectives, risks, charges and expenses carefully before investing. The prospectus and the summary prospectus contain this and other information about the fund. Contact your financial professional for a prospectus and the summary prospectus. Read them carefully before investing.

An investment in our money market funds is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the funds seek to preserve the value of your clients investment at $1.00 per share, it is possible to lose money by investing in the funds.

Mutual fund investing involves risk. Some mutual funds have more risk than others. The investment return and principal value will fluctuate and investor's shares when sold may be worth more or less than the original cost. Fixed income investments are subject to interest rate risk, and their value will decline as interest rates rise. Asset allocation and diversification do not assure a profit or protect against loss in declining markets. There is no guarantee a Fund's objectives will be achieved. The risks associated with each fund are explained more fully in each fund's respective prospectus. Your clients should consult with their attorney, accountant, and/or tax professional for advice concerning their particular situation.

This material is being provided for informational or educational purposes only and does not take into account the investment objectives or financial situation of any client or prospective clients. The information is not intended as investment advice and is not a recommendation about managing or investing your retirement savings. Clients seeking information regarding their particular investment needs should contact a financial professional.

Investment products are distributed by Prudential Investment Management Services LLC, a Prudential Financial company, member SIPC. Separately Managed Accounts are offered through our affiliates. Jennison Associates and PGIM, Inc. (PGIM) are registered investment advisors and Prudential Financial companies. QMA is the primary business name of QMA LLC, a wholly owned subsidiary of PGIM. PGIM Fixed Income and PGIM Real Estate, are units of PGIM. © 2019 Prudential Financial, Inc. and its related entities. Jennison Associates, Jennison, PGIM Real Estate, PGIM and the PGIM logo are service marks of Prudential Financial, Inc. and its related entities, registered in many jurisdictions worldwide.

Prudential Financial, Inc. of the United States is not affiliated with Prudential plc. which is headquartered in the United Kingdom.

Investment Products: Are not insured by the FDIC or any other federal government agency, may lose value, and are not a deposit of or guaranteed by any bank or any bank affiliate.

 

For compliance use only 1004055-00001-00 Ed. 07/2018