A wise American once said “Life is hard; it’s harder if you’re stupid.” A good example is when your pals in Washington are so busy pushing their partisan agendas that they lose sight of what could happen to the American economic Thunderbird if it goes all Thelma and Louise over the fiscal cliff.
-Christine Hurtsellers, chief investment officer of fixed income, ING Investment Management
Bond Market Outlook
Global Interest Rates: As long as economies remain weak, interest rates will be low and central banks will be accommodative.
Global Currencies: We remain bearish on the U.S. dollar, yen and euro, preferring to own EM currencies with better yields and more attractive valuations.
Corporates: Our medium-term outlook remains constructive, but spreads are likely to widen and be volatile near term due to weaker earnings guidance and the fiscal cliff.
High Yield: Spreads continue to offer attractive long-term compensation for default risk, though current yields and dollar prices limit upside.
Mortgages: Prepayment fears have spiked post-election, but mortgages should remain well supported by Fed buying activity.
Emerging Markets: Developed market rates will remain low near term, providing attractive yield advantages for EM bonds.