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Alternative Market Briefing

Fixed Income Market Outlook: Opportunities, but effective credit selection is of the utmost importance

Thursday, December 22, 2016

Matthias Knab, Opalesque:

Virtus Investment Partners writes on Harvest Exchange:

As we look ahead to 2017, we believe opportunities exist and, consistent with our 2016 Outlook, effective credit selection is of the utmost importance and will drive returns for 2017.

While we do not bet on or anticipate interest rate movements as part of our investment process, we do have an opinion as to where we see rates going over the next 12 months. We expect that the 10-year U.S. Treasury yield will be range bound between 2.25-3%, with rates approaching the higher end of the range if President-elect Trump gets some of his pro-growth policies through early and these policies help push GDP growth to the 3-4% range. If this were to happen, we would expect rates to eventually pull back some as higher rates start to slow the economy. The pace of Fed rate increases and messaging will be particularly important to spread sectors going forward. Other factors that will influence the credit markets in 2017 include oil prices, China and overall global growth, and the U.S. dollar..

Spread Sector Outlook

CORPORATE HIGH YIELD: Opportunity – There are at least three reasons why corporate high yield is appealing. First, on a relative basis, it is still one of the highest yielding sectors of the bond market. In an environment where negative-yielding bonds account fo......................

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