Summary

• At the start of the year, the macro environment was defined by resilient growth and moderating inflation - supporting expectations for gradual Fed rate cuts.
• The current environment is marked by geopolitical volatility, as markets grapple with the war in Iran, surging oil and gasoline prices amid already sticky inflationary pressures, and a complicated U.S. labor market.
• High-yield debt is cautiously constructive, but geopolitical risk, shifting rate expectations, and structural concerns in private credit warrant selectivity.
• Emerging market debt faces greater uncertainty as the Middle East war and energy shocks raise a new, higher oil-price floor.
• Higher oil and natural gas prices raise input costs for businesses and pressure household disposable income, with uneven geographic impacts.

By Michael Goosay, Chief Investment Officer, Fixed Income

Introduction

At the start of the year, the macro environment was defined by resilient growth and moderating inflation - supporting expectations for gradual Fed rate cuts. Combined with attractive

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