Knowing the stakes, the Fed is likely to keep surprises to a minimum.
The U.S. Federal Reserve met expectations and increased interest rates by 25 basis points.
Should the Russia-Ukraine conflict persist, it would lead to further tightening of financial conditions
Highlights from the week of April 29 – May 5, 2022.
The key CLO themes in Q1 2022 were a smooth transition to SOFR, relative outperformance versus other comparable asset classes, widening in liability spreads towards the back end of the quarter, elevated redemption activity early on, and notable deceleration in US issuance volume in March.
Knowing the stakes, the Fed is likely to keep surprises to a minimum.
Despite our view that a U.S. economic contraction is avoidable in the near term, the outlook for equities has deteriorated since the beginning of the year and we think this sour spot is likely to last as monetary policy becomes tighter.
The U.S. Federal Reserve met expectations and increased interest rates by 25 basis points.
Should the Russia-Ukraine conflict persist, it would lead to further tightening of financial conditions but is unlikely to deter the Federal Reserve from a 25 basis point interest rate hike in March. Tighter conditions will slow economic growth at the margins and constrain financial markets over the short term, but not over the longer term.
The market’s expectations for curve flattening may be excessive, as the timing of rate hikes and the aggressiveness of the Federal Reserve are still open to debate.
The fundamental and technical loan picture remained favorable in Q4-2021, supporting CLO performance with sustained improvement in structural/market value metrics.
We see scope for continued global equity gains as the impacts from Covid, policy stimulus and inflation diminish. The current balance of market factors keeps us overweight U.S. large cap stocks.
The market’s curve flattening expectations may be excessive, as the timing of the hikes and aggressiveness of the U.S. Federal Reserve are still open to debate.