Brad Payne: You’ve written about the possibility of less forward guidance from the Fed. How does that change the way investors should think about positioning when the path of policy becomes less predictable? And what value do liquidity investments provide in this type of environment?
00:27 Deborah Cunningham: Well, I certainly think it adds to the volatility that investors see in the marketplace. So with less forward guidance, there has to be sort of a mosaic approach where ultimately you’re taking what is less information and trying to predict based on maybe innuendos as opposed to actual statements and guidance in the context of certain instances and examples as opposed to dots and actual numbers.
01:02 Now, when there’s volatility, there’s opportunity. So, you know, if you have a level at which, you know, above that level, you’ll buy it and below which you won’t, that’s a good strategy for that type of a marketplace. And I think that benefits investors in the context of them being able to capture where the yield curve is on a more consistent basis in the products without having to assume that same amount of volatility that the actual yield curve itself is providing. So as Fed expectations change with the new leadership change, the market has adjusted its expectations going out the yield curve for what the direction of interest rates is and what the volatility associated with those rates are.
01:48 What, given where we are right now in the current environment, does this mean for your duration discussions and how you’re positioning the products that are beyond the money market side of the equation?
02:02 Payne: So, similar to the liquidity side, in the short-duration fixed-income space, we’re also utilizing the longer end of our range that we’re given with the re-steepening of the front end of the yield curve. So, we are seeing more attractive levels in the two-year Treasury rates now that there are implied Fed hikes priced into those. So, we’re taking opportunities maybe to extend to the more higher edge of our short duration ranges.
02:30 In addition to that, on the credit side, given that a lot of our alpha is generated from sector positioning and credit allocations, with spreads maintaining resiliency this year, we are seeing opportunities within corporate yields, within ABS spreads, also within certain out-of-index spaces like trade finance and bank loans are offering value too for investors. There are pockets of opportunity both on the credit space and as well as extending out in duration and short-term fixed income.
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