Since President Trump took office on Jan. 20, 2025, the U.S. has been the worst performing stock market of the entire G7. While Trump likes to shoot from the hip when it comes to economic policy, investors in U.S. assets, it seems, do not appreciate this approach. The uncertainty created by further tariffs is also creating a headache for firms who are trying to figure out how their supply chains are going to be impacted, and to what extent higher costs will reduce their competitiveness, thereby negatively impacting their share prices. Exhibit 1: Performance of G7 stock markets One way

In the fixed income world investors often talk about “the spread” as one possible driver of returns. But what is “the spread” and why does it exist? Generally speaking, the spread in interest rates which is also called “credit spread” refers to the difference between two interest rates, often between a benchmark rate (normally the interest rate of government bonds) and a specific interest rate on another type of bond (such as corporate bonds). For example, if a 10-year government bond has a 3% interest rate and a corporate bond of similar duration has a 5% interest rate, the spread

The late economist Axel Leijonhufvud noted in a 1979 essay that the theory of the interest rate mechanism remains at the center of the confusion in modern macroeconomics. All the inconclusive quarrels, he argued, largely stem from this source. While financial market academics continue to argue the merits of their preferred theory – whether it be IS/LM based models, Keynes’ liquidity preference or the loanable funds theory – bond traders have had to deal with the reality of conflicting interest rate signals. The recent dramatic shift in the path of interest rates indicates fixed income markets have become, in the

Investors often fail to distinguish between uncertainty and risk. This is partly because there is an army of strategists advising investors how to manage risk through market narratives. These narratives attempt to explain away the complexity of the world we live in, giving the impression that uncertainty can be managed. Although listening to stories is fun and can make us feel confident about the future, investors need to embrace uncertainty to generate robust returns rather than listening to those who attempt to explain it away. A perfect example of this has been the liability driven investment (LDI) approach taken by

“History doesn’t repeat itself, but it often rhymes,” as Mark Twain is often quoted as saying. When it comes to the credit cycle and the stock market, the ups and downs most definitely rhyme. The challenge for investors is to be in equities in the upswing of the cycle, selling out before the downswing starts due to rising default rates. The Swedish economist Knut Wicksell argued that when the return on capital was higher than the cost of capital, it would lead to a cumulative process of excess credit creation due to higher expectations of profits. This might come about

In this #FundManagerChat podcast, Pilar Gomez-Bravo, Director of Fixed Income Europe at MFS Investment Management and lead manager of the MFS Meridian Funds Global Opportunistic Bond Fund sets out her case for global bonds. Pilar outlines how she is finding opportunities in global bond markets in the face of quantitative distortion, geopolitics and inflationary expectations. She discusses how her portfolio is positioned to take advantage of structural drivers she believes will keep bond yields down such as demographics, technology, the debt overhang and the Asian savings glut. Pilar also reveals how her fund has benefited from a contrarian duration position, shares her outlook for

Liberal democracies force individuals to have moral opinions about the world we live in. Every few years, as the economist Joseph Schumpeter put it, citizens decide which elite best represents their point of view via the ballot box. Therefore, it is natural for voters (and investors) to want the political parties that agree with their world outlook to succeed, and the parties they oppose to fail. The challenge for investors is to remove this built-in cognitive bias from investment decisions and to focus on market fundamentals rather than political posturing . For example, following the conclusion of the Mexico –

The general tone of the municipal market continues to be neutral, but optimism is building overall, at least for the short term. When looking at the long term, even with higher interest rates seemingly assured Twelve percent of the more constructive traders see a move lower in yield for both the 10-year and 30-year MMD AAA spot rates of 4 to 6 basis points. PMs predicted even more significant moves, with 40% seeing drop in yield of 7 bps for the 10yr MMD spot rate and 20% expect a possible move that large for the 30yr range. Bearish respondents are

Larry Fink is opening a new front in the passive investment war on fund management. His firm, BlackRock, will sell exchange-traded funds using its own customized fixed-income indexes – and slash fees. It’s a formula the money manager with $5.4 trillion of assets has used in equities to eat stock pickers’ lunch. For an industry with little growth, the casualties of this latest assault may be widespread. Low cost and ample liquidity have made ETFs wildly popular for everyone from retail investors to hedge funds. Most of the action has been in equities, though. They represent nearly 80 percent of