Research.LeutholdGroup

Despite the recent signal whipsaws, we have been cautious toward all risky assets and we continue to recommend defense amid higher volatility across all asset classes.

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A significant rise in real yields would make us turn cautious toward all spread products.

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Attractive relative valuation outweighs concerns about heavy issuance and moderate deterioration in underwriting standards.

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Both interest rates and investment grade spreads are at a reasonably attractive level to provide downside cushion.

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While we believe overall volatility is likely to stay high, both interest rates and investment grade spreads are at reasonably attractive levels to provide a downside cushion.

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Political risks linger and the M&A picture remains active.

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Volatility has stayed high as political and geo-political concerns linger while the central bank liquidity reduction is underway. 

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Our overall view toward credit has turned decidedly cautious over the last couple months and that includes our long-term favorite.

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Higher volatility when credit spreads are already thin makes even the higher-quality issuers less immune to credit sell-offs. We tactically reduced these bonds to Neutral.

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The net impact of the tax reform is significantly positive to investment grade companies as the interest deductibility change has very little impact.

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The new tax bill will be another tailwind for these bonds as Corporate bond issuance is likely to be reduced going forward.

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These bonds were quite stable during the credit sell-off in November and they remain good candidates for earning the carry.

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If the new tax plan gets passed, Corporate bond issuance will likely decrease while demand remains strong.

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The proposed corporate tax cut and the elimination of interest deduction are likely to reduce Corporate bond issuance while demand should remain strong.

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Corporate leverage is likely to plateau in the second half of the year, helped by a much improved Energy sector.

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Corporate issuance is likely to decelerate due to slower M&A activity in the second half.

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“Lower Risk” signal closed out the “Higher Risk” signal generated five months ago. We’re encouraged by the resilience in risky assets during the oil sell-off and the late surge in global bond yields. We’ve been favorable toward high-grade credit and maintain this view within the fixed income space.

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Higher quality Corporate bonds are big beneficiaries of the goldilocks environment.

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Despite the recent soft patch of data, the economic backdrop remains solid.

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We recommend going up in quality across the whole fixed income spectrum.

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Higher quality Corporate bonds should be able to weather the rate hike quite well.

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After the big supply last month, we believe there is more room for spreads to narrow.

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The reflation theme got an extra kick after the election. Companies with stronger credit profiles continued to benefit from tighter credit spreads.

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Regardless of whether the reflation theme continues, high quality spread products should continue to do well.

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Although the spread cushion is thinner than it was a couple years ago, these bonds still offer the attractive combination of quality and spread.

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There is still room for spreads to compress. We maintain our Favorable view of US Investment Grade Corporates.

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The demand for safe spreads remains strong and we maintain our Favorable view on these bonds.

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The demand for safe spreads is here to stay and we maintain our Favorable view on these bonds.

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The demand for safe spreads is still strong and we maintain our Favorable view on these bonds.

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More spread compression is likely ahead.

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Given more attractive valuations, we tactically upgraded investment grade Corporates to Favorable.

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We maintain Neutral in light of persistent high volatility.

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We are downgrading U.S. Investment Grade bonds to Neutral in light of the risk-off environment.

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We believe higher quality Corporate bonds should be able to weather the higher volatility expected from a rate hike and oil sell-off. Maintain Favorable.

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We think higher Quality Corporate bonds offer a better reward/risk profile now.

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Despite more attractive value now, we expect volatility and near term headwinds to persist.

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Issuance surged in recent weeks as companies rushed to lock in low rates before expected rate hikes.

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The fundamental backdrop remains favorable for high grade credits.

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Although the fundamental picture remains healthy for most U.S. High Yield issuers and defaults are expected to be low, the reversal of a crowded trade could lead to further substantial losses on these bonds.

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We believe the sell-off in Munis is overdone in the short-term and these bonds look attractive relative to Treasuries. But in the medium-term the tapering risk will linger; this is a big negative for long maturity credits like Munis.

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