Preparing for Jan FOMC

Key Points

The market prepares for the Jan FOMC meeting amid rates volatility, geopolitical risks and lower forward guidance from Q4 earnings; front end higher yielding assets as well as leveraged loans / CLOs outperformed

10-yr UST has temporarily reached >1.8% while the curve flattened as the market remains reluctant to price in a much higher terminal rate; real yields across the curve remain deeply negative, leaving duration products subject to further vol

Credit valuation screens cheap on an 18-month lookback, Bank AT1s are (so far) among the best performers within the cash bond universe thanks to a higher carry buffer

The portfolio continues to focus on a low credit duration taking advantage of attractive entry points in short-dated Bank AT1s as well as re-open themes; the portfolio also added a bit of CLO exposure given their floating rate structure

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