Wind
Early to mid cycle economy
Steady economic growth
Potential for rising rates
Compelling spread
Steep yield curve
-
Shorter than benchmark duration
-
Overweight Corporates and FRNs; underweight Treasuries and Mortgages
-
Favor BBB
-
Active trading for yield
Waves
Late economic cycle
Expectation of inflation ahead
Restrictive monetary policy
Spreads are narrow; could widen
Flattening yield cure
-
Duration neutral to slightly overweight benchmark
-
Sectors neutral to benchmark
-
Favor AA to A
-
Trading: Favor issuers with stable ratings and stable leverage
Weather
Economic growth slowing
In, or on cusp of, recession
FOMC is exiting/changing policy
Spreads widen; possible inverted curve
Volatility and uncertainty
-
Duration longer than the benchmark
-
Build positions in Credit, FRNs and MBS opportunistically
-
Buy quality income at the right price to increase yield
-
Trading: Adjust sectors and quality
The JKMilne Edge
"Anyone can hold the helm
when the sea is calm."
. . ...Publilius Syrus (85-43 BC)