Oil And The Message From Credit (by Louis Gave, GaveKal Capital) - Fixed income investors typically have to answer two questions: the first is whether to have...

Oil And The Message From Credit (by Louis Gave, GaveKal Capital) - Fixed income investors typically have to answer two questions: the first is whether to have a longer, or shorter, duration portfolio than their benchmarks. The second is whether to improve, or reduce the quality of their bond holdings. And to guide them in these decisions, they need to study relative valuations, form a view on the economic growth outlook and then anticipate changes in factors such as inflation. And this brings us to the US at the start of this year, when most investors seemed to agree that: a) US growth would move higher, b) that inflation would remain constrained and c) that the Federal Reserve would keep interest rates at, or near zero. With such an outlook, most US fixed income concluded that the right bet would be to reduce duration and reach for yields by increasing corporate risk. After all, given ZIRP and the pick-up in economic growth, a rise in corporate bankruptcies seemed unlikely. Read more - (VIEW LINK)