Following the Republican party’s sweeping victory, markets saw a broad rally in US assets that was driven by short-covering and renewed risk-taking. Credit spreads have tightened over the last week as the potential for strong domestic growth is expected to increase corporate profitability.

Technicals and all-in yields also remain strong and continue to attract record inflows into US investment grade bonds. Despite the rising inflation concerns associated with Trump’s policies, we’d argue that a material shift in the economic backdrop that could push treasury yields substantially lower is actually the greatest risk to spreads. Given these risks, we aim to maintain our conservative positioning as we approach the end of the year.