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