Investment Grade Corporate Market Review and Outlook

Investment Grade Corporate: Market Review and Outlook Q2-2021

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Investment Grade Portfolio Team
JUN 30, 2021

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The strong performance of risk markets continued in the second quarter on accelerating vaccinations, fiscal stimulus, and better than expected earnings.

As mentioned in our previous quarterly outlook, recent economic reports significantly improved as we have passed a year since the pandemic hit and the US economy continues to recover. In June, although the ISM manufacturing index eased from the 38-year record high level reached in March, it remained at an elevated level of over 60, indicating robust growth1. Consumer confidence surged in June to a new pandemic high and the labor market continued to improve as the unemployment rate declined further to 5.9% and jobless claims declined to the lowest level since the beginning of the pandemic2. We expect the labor market to improve further in the fall as stimulus checks and increased unemployment benefits roll off. At the same time, Fed policy remains very supportive. The pace of Treasury and MBS purchases remained robust at $120 billion per month3. However, during the June FOMC meeting, the Fed surprised the market with a more hawkish narrative. As the result, the Treasury curve bull flattened; and following a temporary surge in volatility, risk markets remained resilient.