Corporate bonds: Gain now, pain later?

While we are comfortable being long credit and neutral on government bonds for now, increasing uncertainty around stronger growth, or higher inflation, makes us cautious for the second half of the year.

So how have we positioned the fixed income portfolios? We have a tactical, near-term view, as well as a longer-term positioning bias. As long as investors remain confident that Fed rate cuts have been delayed rather than abandoned, we are comfortable being long credit as we think the strong supply-demand imbalance is likely to persist. We are neutral government bond yields, given elevated US inflation and economic growth.