Special Topics

The end of DOJ criminal probe involving the outgoing Fed Chairman Jerome Powell seems to have paved the way for the confirmation of Kevin Warsh, the Trump administration’s choice for the next Fed Chairman.

Japan is facing a trifecta of macroeconomic problems that might come to a near-term crescendo in the form of a currency crisis and/or major bond panic.  Japan’s crisis will reverberate throughout global markets.  Investors must pay attention to events in Japan.

The U.S. economy still “looks” fine in terms of headline data, but stress is building beneath the surface. Growth has held up and unemployment remains low, yet the consumer is increasingly bifurcated by income—an important backdrop for how we underwrite credit risk going into 2026.

Credit fundamentals across most fixed-income sectors have been solid in 2025 and should stay broadly stable through 2026, but with IG and HY spreads already near the tight end of historical ranges, valuations look priced for “benign” conditions and leave limited cushion for shocks—making structured credit more attractive on a volatility-adjusted basis.

We believe the Federal Reserve (Fed) will cut rates three times in 2025, with their target rate ending around 3.50-3.75%, which is somewhat more dovish than the approximately 1.75 cuts indicated by the Fed Funds futures market at year end.

Fixed-rate structured credit securities’ valuations and technicals look compelling relative to both floating-rate leveraged loans (bank loans) and floating-rate MBS sectors such as GSE CRT. Below, we outline the case for fixed vs floating rate securities.

CMS Spread Floaters are a type of Corporate Structured Note issued by financial institutions whose returns or coupons are derived from values of Constant Maturity Swap (CMS) rates for different maturities.

The current probability of recession, according to the Federal Reserve Bank of New York as of the end of July, is 66.0%, the highest level since the early 1980’s.