AI is a transformative technology with both near-term and long-term implications for the economy. For investors, while the debt-funded AI buildout has the potential to become a secular driver of risk premia, we believe any such shift would only play out through a multi-year adjustment and would not override the cyclical forces that affect markets.
Businesses are racing to build the physical infrastructure that makes AI usable at scale – data centers, the graphics processing unit (GPU) hardware stack, power, and cooling.
Recent Federal Reserve communications have turned more hawkish, reflecting concern that persistent supply-driven price pressures could begin to feed into inflation expectations. But unlike in prior cycles, today’s environment is not defined by supply shocks alone.
Many debates in defined contribution (DC) circles focus on fees, new asset classes, and ever more complex solutions. But the biggest improvement available to plan participants may come from something far simpler: how their fixed income is managed.
Despite the move lower late last week, U.S. Treasury yields are still holding well above recent lows and close to highs not seen in more than a year. By contrast, risk assets are firmly bid: U.S. equities have been routinely touching new historical highs, and credit spreads over Treasuries remain tight.
Since the post-COVID recovery began, U.S. nonfinancial corporations have generally managed capital conservatively. They have kept credit metrics stable and, in many cases, actively improved them. That discipline was not entirely voluntary: The sharp adjustment in funding costs triggered by the Federal Reserve’s 2022–2023 rate hiking cycle raised the bar for incremental borrowing and pushed management teams toward balance sheet restraint.
Sustainable investing in fixed income has come of age. Against a backdrop of heightened geopolitical tensions, persistent economic and trade uncertainty, sustainable fixed income continued to demonstrate its appeal in 2025.
In the past year, new models from industry leaders have continued to boost AI’s capabilities. According to various capabilities tests, Anthropic’s Mythos model has leapfrogged other AI models – including in the ability to thwart or support cyberattacks.
For shareholders, the upside justifies the gamble. For bondholders, the downside is real and the upside belongs to someone else. That wedge – the classic asset substitution problem – is what credit investors are increasingly pricing, and until the re-leveraging impulse shows signs of reaching a plateau, the divergence across the capital structure is likely here to stay.
Within private credit, attempts to increase liquidity – the ability to buy or sell an asset quickly, in size, and at prices reflecting fundamental values – are welcome developments, in our view. Yet until these efforts address the market’s inherent structural constraints, including a lack of true price discovery, they will only increase the perception of liquidity without truly improving liquidity.
Something unusual is happening with U.S. inflation data. While the core Consumer Price Index (CPI) has looked relatively cool recently, core Personal Consumption Expenditures (PCE) inflation has risen sharply.
A persistent oil shock implies higher inflation and weaker growth, but risk assets appear unfazed, with equities and credit spread performance diverging from the caution implied by government bonds.
Markets and observers weren’t surprised when the Federal Reserve held its policy rate steady at the April meeting. More notable, in our view, were the three dissents by voting participants who did not support keeping the implicit easing bias in the policy statement’s forward guidance language.
Sentiment toward BDCs – funds that invest in small and midsize private U.S. businesses – has improved since early March. BDC bond spreads have stabilized and outperformed the broader investment grade (IG) index, suggesting credit investors are increasingly comfortable with downside risk.
Markets have long struggled to price geopolitical risk. Part of the issue is that each flare-up tends to be viewed as a one-off volatility jolt to be weathered and then faded once there is resolution.
Even in the event that the Middle East conflict eases and shipping resumes as usual through the Strait of Hormuz, it would likely take time for the global economy to normalize after one of the largest oil supply disruptions in decades.
Despite compositional differences – public equities generally represent larger companies with more scale, liquidity, and financial flexibility than the typically smaller, private-equity-owned issuers that dominate the software loan market – the outcome is the same: Neither market has been able to fully retrace the year-to-date sell-off in a meaningful way.
Late last year, the Federal Reserve ended its latest quantitative tightening (QT) program: the process by which it shrinks its balance sheet by selling securities or letting them mature without reinvestment.
The Middle East ceasefire sparked a relief rally last week as markets dialed back the risk of a deep, drawn‑out oil supply shock. Stocks have already erased much of the post-conflict drop. Bonds haven’t gotten the memo: Yields are still elevated, keeping a bit of extra term premium on the table.
Ever since the pandemic – when surging housing demand collided with a decade of underbuilding – housing affordability has become an increasingly important political issue and a larger focus for policymakers.
U.S. headline employment rebounded strongly in March, posting the largest monthly gain since late 2024. The jobs rebound, which was broad-based across industries, was a welcome sign after February’s data showed a sharp decline not usually seen outside of recessions.
Across corporate lending markets, some investments are easier to trade and exit than others – differences that deserve particular attention today.
Systematic equity investing is a way to invest in the stock market using clear rules and data, rather than guesswork or hunches. Instead of trying to pick stocks based on trends or headlines, this approach uses research, data, and technology to systematically identify opportunities across global markets.
Amid geopolitical uncertainty, dispersion across credit markets – rather than a broad risk-off move – has become the dominant investment signal.
In a world of intensified uncertainty and dispersion, investing becomes less about forecasting and more about favoring more liquid, high quality assets that can be resilient across a variety of scenarios.
Proposals to engineer secondary trading in private assets, often championed by vocal critics of public market liquidity, have gained renewed momentum. For some, enhanced tradability is viewed as a remedy to growing unease over the absence of transparent, real‑time valuation signals in private portfolios.
The Federal Reserve held the policy rate steady in March at 3.5%–3.75%, a widely expected outcome as policymakers navigated an unusually complex macro backdrop.
The military conflict in Iran and the Middle East is curtailing the global flow of oil and natural gas. This adds notable pressure to energy prices and the near-term inflation outlook, while also raising questions about countries’ reliance on energy imports and their economic resilience.
Concerns about private credit have intensified in recent months. Investors are grappling with questions about weakening credit quality, stale valuations, looser underwriting, redemption risk in certain types of funds, and the impact of AI‑driven disruption.
The U.S. Supreme Court on Friday invalidated tariffs that President Donald Trump had imposed under the 1977 International Emergency Economic Powers Act (IEEPA). Most of the administration’s 2025 tariffs will therefore be rolled back, and importers should eventually receive refunds.
In recent editions of Macro Signposts, we’ve emphasized how U.S. policy changes coinciding with the emergence of a new general-purpose technology (AI) may be accelerating adoption and diffusion of that technology – while also driving economic adjustments.
The historic election victory in Japan for the ruling Liberal Democratic Party has granted Prime Minister Sanae Takaichi the strongest mandate in the country’s postwar era and raised hopes of a shift toward growth-oriented policy.
Barely a month into 2026, markets have already weathered multiple bouts of rolling, event‑driven volatility. Geopolitical surprises and policy pivots have triggered sharp price moves from the U.S. to Japan to Europe, from sovereign bonds to currencies to mortgages.
President Trump has announced his intention to nominate Kevin Warsh to become the next chair of the Federal Reserve Board of Governors. We believe Warsh will be confirmed by the Senate and serve as an effective, thoughtful Fed chair. He brings intriguing ideas on ways to change and ideally improve how the Fed operates.
Amid a rush of domestic and foreign policy developments that have rattled markets – including the potential for another U.S. government shutdown – the Federal Reserve held steady on U.S. monetary policy.
Last week in our latest Cyclical Outlook, “Compounding Opportunity,” we argued that beneath the economy’s broad resilience lies a stark divergence. U.S. policy pivots combined with the surge in adoption of AI technology have created winners and losers.
Following strong 2025 returns, high quality fixed income continues to offer attractive yields and global diversification at a time of stretched equity valuations and tight credit spreads.
Macro Signposts highlights takeaways from the data analysis conducted by our team of economists and other experts.
Elevated yields, steeper yield curves, and ongoing volatility make core bonds a compelling choice for total return, income, diversification, and downside risk mitigation in today’s markets. Active management is key: Historically, it has helped core bond portfolios outperform passive strategies through a rigorous, diversified approach.
The Federal Reserve delivered a widely expected 25-basis-point (bp) rate cut in December, then signaled a more data-dependent path ahead. Barring an economic shock, we probably won’t see another rate cut until the second half of next year.
Marc Seidner, CIO of Non-traditional Strategies, explores opportunities across equities, bonds, credit, and commodities that have the potential to offer investors resilience and diversification.
This technology is moving quickly, with most businesses only in the early stages of understanding its capabilities. Whether and how fast AI can unlock new, transformative, lucrative idea generation or unleash a force in the U.S. economy similar to the “China shock” – the period in the early 2000s when outsourcing shrunk the U.S. manufacturing base and structurally changed the U.S. labor market – is yet to be seen.
Investors have poured into gold – but they may also see compelling benefits from a broad-based commodity allocation.
The ongoing U.S. government shutdown has policymakers – and investors – operating without much of the timely official data that usually inform their decisions. This could have a tangible impact on Federal Reserve policy in particular.
China’s ability to sustain fairly robust economic growth despite a massive property sector downturn is now facing new tests as global trade barriers rise, and domestic demand shows fresh signs of weakness.
The Federal Reserve on Wednesday announced a widely anticipated 25-basis-point (bp) rate cut, bringing the federal funds target range to 3.75%–4.00%. With markets priced for this move and the Fed operating in a data vacuum due to the U.S. government shutdown, the rate cut and modest statement changes were largely uneventful.
The recent high-profile bankruptcies and the timing of their collapse are consistent with this changing macro backdrop, although these cases were also allegedly exacerbated by inconsistencies in collateral accounting and pledges.
The balance of risks to the Federal Reserve’s dual mandate (price stability and maximum employment) prompted the central bank to lower its policy rate in September in an effort to bolster the economy and employment.
Locking in attractive bond yields can support long-term returns, especially as central banks cut interest rates and tariff effects pose risk to global economic growth and inflation.
