What is the Multi-Asset Credit Strategy (MACSM) meeting?
The Multi-Asset Credit Strategy meeting (MACSM) is a bit of a mouthful, but it does exactly as it is described. It sets our overarching framework for our view on the fixed income landscape – where the opportunities and risks are – and brings in everyone from across the team and, in particular, tries to harness the specialisms within the team, looking at both the fundamental picture and also the valuation picture and what might be cause for moving markets in more meaningful ways, positively or negatively. The result can be something of a North Star for us, right across the strategy spectrum.
So, whether it be on the high yield, investment grade, or flexible credit side, there is a nod to what we’re thinking in that overarching framework. We like to deliver those views in a more expanded way through our bimonthly 360° publication. So, that report is definitely worth a read and tries to sum up what we’re thinking about in quite a granular way across all the different sub–asset classes that we look at, as well as the different sectors and geographies.
Do you think the Fed (US Federal Reserve) will continue to raise rates in H2?
On the topic of the Fed, they clearly have a difficult job here because core inflation is still being so stubbornly sticky. We’ve had many discussions with our colleagues on the Alpha Pod’s1 over in Pittsburgh on this recently. Our core view is that the market is still underestimating some of the lagged effects of what has been such an incredible amount of tightening in the last couple of years. We think it’s inevitable that it’s going to start biting in terms of the real economy at the end of 2023 and into next year.
So, while the Fed may be on pause [in June], I think it may well be that they are directed more by the real economy going forward than by some of the inflationary concerns that have got us to this point. That’s something that I think has big implications for the way we think about our positioning and how we think about the types of companies that have more or less sensitivity to that real economy.
We think that we're at a turning point here [...] I think that attention is going to move to the VIX.
Why are the VIX and MOVE indices heading in different directions?
In terms of so-called ‘fear gauges,’ people will be most familiar with the VIX Index2 as it relates to equity market volatility. In recent years, people have become more familiar with fixed income volatility as measured by the MOVE Index3. Over longer periods of time, different levels of volatility in different asset classes should be quite well correlated. If you’re going to worry about something, you worry about it everywhere.
What’s been interesting more recently is that it’s been really elevated on the fixed income side – obviously due to the inflation backdrop and uncertainty around the direction of central bank policy – but has been incredibly low and actually quite sanguine in terms of the backdrop in equities. We think that we’re at a turning point here and people are going to start moving their focus towards what the hikes are going to do in terms of consumer corporate balance sheets, earnings and, subsequently, I think that attention is going to move to the VIX. For most of what we look at in higher-quality credit and fixed income more broadly that should be a tailwind, with the MOVE Index coming off its lofty levels.
1 The US equivalent to the MACSM meeting.
2 VIX Index: This is a trademarked ticker symbol for the Chicago Board Options Exchange Market Volatility Index, a popular measure of the implied volatility of S&P 500 Index options. Often referred to as the fear index or the fear gauge, it represents one measure of the market’s expectation of stock market volatility over the next 30-day period.
3 ICE BofAML Option Volatility Estimate Index (MOVE): A yield curve-weighted index of the normalized implied volatility on one-month treasury options.