The U.S. credit market has been a bright spot for investors this year as corporate bonds have staged a powerful rally. In this Q&A, corporate bond manager David Lee discusses his outlook for the market, sectors where he is finding value, his approach to long duration portfolios and how his view of the U.S. economy helps shape his investment strategy.
We’ve had a substantial run-up in corporate bonds this year. What is driving the rally and where do you see it going from here?
In my opinion, the primary drivers of tighter corporate spreads, as well as higher corporate bond prices in 2012, are twofold. The first is macroeconomic data points confirming that the U.S. economy continues to expand, albeit at a moderate pace. The second reason is a lowering of a tail-risk outcome in Europe due to ongoing efforts by the European Central Bank (ECB) to resolve the sources of distress in the financial system. Most recently, that has taken the form of promised ECB asset purchases. That greatly reduces, at least in the near term, the likelihood of a tail-risk event in Europe.
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