Since the 2008 Global Financial Crisis, interest rates have been historically low with inflation below 2% in a market environment best characterized by steady monetary and fiscal easing to spur economic growth.
In response to the COVID-19 global pandemic, the first quarter of 2020 marked the beginning of an unprecedented response by governments and central banks to reflate economies sidelined by the coronavirus. Through a series of actions, monetary and fiscal policy have, to date, proven successful in restoring function to financial markets while attempting to protect citizens from severe hardship as a result of the abrupt stop in economic activity.
Markets now have shifted their focus to the implications for the future, including a renewed debate on the global outlook for inflation. In the U.S., the Federal Reserve has committed to allowing inflation to rise above 2% for a period before implementing tightening policy, and to this point has not projected when asset purchases will begin to unwind.
IMPORTANT RISK CONSIDERATIONS
Credit & Interest: Debt instruments are subject to various risks, including credit and interest rate risk. The issuer of a debt security may fail to make interest and/or principal payments. Values of debt instruments may rise or fall in response to changes in interest rates, and this risk may be enhanced with longer term maturities. High Yield Fixed Income Securities: There is a greater risk of issuer default, less liquidity, and increased price volatility related to high yield securities than investment grade securities. Bank Loans: Loans may be unsecured or not fully collateralized, may be subject to restrictions on resale and/or trade infrequently on the secondary market. Loans are subject to credit and call risk, may be difficult to value, and have longer settlement times than other investments, which can make loans relatively illiquid at times. Foreign & Emerging Markets: Investing in foreign securities, especially in emerging markets, subjects the portfolio to additional risks such as increased volatility, currency fluctuations, less liquidity, and political, regulatory, economic, and market risk. ABS/MBS: Changes in interest rates can cause both extension and prepayment risks for asset- and mortgage-backed securities. These securities are also subject to risks associated with the non-repayment of underlying collateral, including losses to the portfolio. Market Volatility: Local, regional, or global events such as war, acts of terrorism, the spread of infectious illness or other public health issues, recessions, or other events could have a significant impact on the portfolio and its investments, including hampering the ability of the portfolio manager(s) to invest the portfolio’s assets as intended. Prospectus: For additional information on risks, please see the fund’s prospectus.
The commentary is the opinion of Newfleet Asset Management. This material has been prepared using sources of information generally believed to be reliable; however, its accuracy is not guaranteed. Opinions represented are subject to change and should not be considered investment advice or an offer of securities.
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