Little Room for Error

Key Points

Omicron triggered a U-turn in the rates market due to sharp risk-off sentiment, investors who bet on earlier rates lift-off were caught off guard

Robust October US personal income and spending data release led to an upward revision for US Q4 GDP

Powell’s renomination as the Fed Chair and recent hawkish comments from FOMC participants led to a growing anticipation on an earlier lift-off, albeit prior to Friday’s Omicron U-turn

Credit spreads widened, vol and correlation spiked, though to a much lesser extent vs. March 2020; our portfolio has built rich cash buffers already prior to the selloff

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