Near open-ended monetary policy stimulus has significantly unplugged global credit markets since late-March, aided by unprecedented fiscal support. We have been overweight spread product (corporate bonds and EM debt), in expectation that these market segments would be well supported and investors would be gradually more willing to take risk in the face of no coupon income from safe-haven government bond markets. If anything, investors have returned to risk-taking even faster than we envisioned.
Last week’s report from MRB updated our multi-asset recommendations and strategy, and reiterated our overweight in credit within fixed-income and multi-asset portfolios. We also lifted our euro area weighting in a global equity portfolio in acknowledgement that increasing regional monetary and fiscal stimulus would provide support to the euro and regional capital markets. Indeed, these assets are starting to perform slightly better, and still offer much better relative value than the U.S.