Capital Group US Corporate Bond Portfolio Manager David Lee Shares His Outlook for the Market
Could you provide us with a brief review of the market in 2016?
There were three defining events that had significant impacts on the US corporate bond market in 2016: a fear of economic slowdown in China; the UK’ s vote to leave the European Union; and US President
Donald Trump’ s election. While the first of these events caused spread widening in the US credit markets, the other two unexpectedly led to a tightening of
Spreads. This was predominantly due to a backdrop of positive US economic growth and accommodative monetary policy globally generating demand for
Higher yielding securities during a period of uncertainty. However, Trump’ s election and the US Federal Reserve’ s( Fed) subsequent
Decision to raise short-term interest rates also drove US corporate bond yields higher. This led to a loss of total return. US corporate leverage continues to be
high, with many companies releveraging to pre-financial crisis levels. Combining this with decelerating profit growth suggests we may be in the later stages