Morgan Stanley IM: Goldilocks Redux?

Our worries that the rally in risk assets would struggle without concrete improvement in economic fundamentals proved partly true. Government bonds rallied massively as more central banks turned dovish and economic data did not inspire. However, despite this headwind of lower government bond yields implying concern about the economic future, risk assets held up well: investment grade spreads narrowed while high yield marginally underperformed. Optimism that an easier/lower path of monetary policy in 2019 and lower real short- and long-term yields will support economies and lengthen the business cycle, despite continued generally disappointing data, abounds. Not incorrectly in our view!

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