What a Nail Biter

Published on Feb. 6, 2018

What a Nail Biter

What’s in the News:

The last few days have prompted many questions for investors. What happened to solid economic expansion? What happened to improved corporate earnings? What will be the effects of the Fed’s balance sheet reduction? Will the government avoid another shut down?

Inflationary fears are causing a bit of panic in the capital markets, so that could be the short answer; however, it doesn’t fully explain why equities were on such a free fall.

After Friday’s jobs report, many were left wondering whether the labor market is healthy enough to sustain increased wages throughout 2018, and whether that could be a catalyst for an increased pace in interest rate hikes.

Given all the market news over the last few days, the odds of a Fed hike in March did decline slightly. However, the probability of an interest rate hike in March remains high, at 83.5%. All in all, Jerome Powell’s first day as Federal Reserve Chairman was a not a dull one.

Fed effective rate
Source: Bloomberg

What are we thinking?

Income investors have waited a very long time to see yields rise, and have been forced to remain patient throughout this low yielding environment. We continue to see yield opportunities across the investment grade corporate and preferred securities spaces, especially within the hybrid fixed-to-floating rate structures. While the last few days were nail biters for market participants, investment decisions should be led by long term plans and risk tolerance levels. As active managers, we seek to provide value by filtering out the noise, making reasonable and informed decisions, and diversifying in preparation for interest rates to trend higher.

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