SPHY

Coming into COVID-19, a chunk of client bond money was in higher yielding money markets since credit spreads (in my opinion) offered little value prior to March 2020.After the 35% correction in the S&P 500, and upon the announcement of the Fed liquidity programs, all that money was moved into corporate credit risk (a tactical bet) given the spread widening that happened.Can't recall the source, but Value is on track to outperform Growth for the month, for the first time in years. The question is, "is this sustainable or is it the proverbial dead-cat bounce?"

In U.S. high yield bonds we find the riskiest of credits.I have some concerns about municipal bonds and am particularly concerned about municipal pension bonds.Our 'Borrower's Paradise' is also good news for many leveraged ETFs and closed-end funds.

The sudden stop to markets induced by COVID-19 caused a substantial repricing of credit risk globally, and central banks, treasuries, and ministries of finance around the world responded unequivocally.As central banks eased liquidity concerns and governments alleviated solvency risks through a massive fiscal response, credit spreads tightened rapidly within more defensive sectors.The focus now is on the economic cycle, as basic industries, capital goods, energy, and other cyclical sectors in both developed and emerging markets are still trading at spreads wide to historical levels, particularly in the lower-quality segments of the market.

We downgrade investment grade credit to neutral and increase our overweight in high yield as we see volatility rising after a rally in risk assets.Negotiations over a new U.S. fiscal package looked to have stalled. We still expect a sizable package, but risks of a no-deal outcome are growing.Markets will focus on the European Central Bank’s updated projections and any policy implications. The traditional U.S. election campaign season kicks off.