Kelsey Berro

All-in fixed income yields are attractive, yields are expected to be range-bound, and carry will be the main return driver. Credit fundamentals are strong: IG index spreads have been in a 5bp range for nearly 60 days, record issuance (including from AI/data build-out) is being well absorbed. Therefore, investors can be comfortable investing in both investment grade and high yield.

Inflation is softening in Europe and emerging markets with downside surprises, while central banks remain hawkish and markets are pricing rate hikes that may not be delivered. This creates value in government bond curves, specifically the ECB, Mexico, and India.

All-in fixed income yields are attractive, yields are expected to be range-bound, and carry will be the main return driver. Credit fundamentals are strong: IG index spreads have been in a 5bp range for nearly 60 days, record issuance (including from AI/data build-out) is being well absorbed. Therefore, investors can be comfortable investing in both investment grade and high yield.

The U.S. dollar is expected to stay slightly stronger through the year because there is no alternative reserve currency, the status is locked in, and the recent uptick is likely to continue, providing a backdrop of slight dollar strength.

Emerging market economies have proven resilient to global shocks and offer investment opportunities where positive fundamentals are not yet fully priced into the market, making them attractive for active management.

Berro highlighted the robust demand for bonds from hyperscalers (like Google) and mentioned Broadcom's deal with Google to supply custom AI chips as an example of ongoing strategic investment. In a stable macro and Fed policy environment, demand for high-quality issuers in the tech/AI ecosystem remains strong. These companies are seen as financing long-term growth initiatives that the market is willing to fund. The capital markets access and continued investment in AI infrastructure are positive for the involved companies' growth trajectories. A sharp, unexpected tightening of financial conditions that closes the capital markets window.

Berro highlighted the robust demand for bonds from hyperscalers (like Google) and mentioned Broadcom's deal with Google to supply custom AI chips as an example of ongoing strategic investment. In a stable macro and Fed policy environment, demand for high-quality issuers in the tech/AI ecosystem remains strong. These companies are seen as financing long-term growth initiatives that the market is willing to fund. The capital markets access and continued investment in AI infrastructure are positive for the involved companies' growth trajectories. A sharp, unexpected tightening of financial conditions that closes the capital markets window.

Berro notes that shelter inflation (rents) and the "Indeed Wage Tracker" are at cycle lows, supporting a disinflation narrative. Rajappa adds that despite sticky inflation, the "path of least resistance" for yields is lower due to geopolitical flight-to-safety. Paul predicts a negative jobs print next week. If the labor market misses expectations significantly (Paul) and shelter costs continue to stagnate (Berro), the Fed's "higher for longer" narrative collapses. Investors are already hedging for a break below 4% on the 10-year. LONG. Duration is the hedge against the "hard landing" or "risk-off" scenario. Sticky inflation in services (healthcare/airfare) mentioned by Rajappa prevents the Fed from cutting.

Berro notes that shelter inflation (rents) and the "Indeed Wage Tracker" are at cycle lows, supporting a disinflation narrative. Rajappa adds that despite sticky inflation, the "path of least resistance" for yields is lower due to geopolitical flight-to-safety. Paul predicts a negative jobs print next week. If the labor market misses expectations significantly (Paul) and shelter costs continue to stagnate (Berro), the Fed's "higher for longer" narrative collapses. Investors are already hedging for a break below 4% on the 10-year. LONG. Duration is the hedge against the "hard landing" or "risk-off" scenario. Sticky inflation in services (healthcare/airfare) mentioned by Rajappa prevents the Fed from cutting.

Berro notes that shelter inflation (rents) and the "Indeed Wage Tracker" are at cycle lows, supporting a disinflation narrative. Rajappa adds that despite sticky inflation, the "path of least resistance" for yields is lower due to geopolitical flight-to-safety. Paul predicts a negative jobs print next week. If the labor market misses expectations significantly (Paul) and shelter costs continue to stagnate (Berro), the Fed's "higher for longer" narrative collapses. Investors are already hedging for a break below 4% on the 10-year. LONG. Duration is the hedge against the "hard landing" or "risk-off" scenario. Sticky inflation in services (healthcare/airfare) mentioned by Rajappa prevents the Fed from cutting.