Highlights:

• Overly ambitious rate cuts expectations by the turn of the year have deflated to now far more reasonable levels. We are starting to warm up to bonds; any further investor capitulation will be an opportunity to extend duration.
• Equity markets have proven remarkably resilient to the central bank repricing. The bifurcation between high yield and resilient equity owes much to the ‘AI miracle’ and rising optimism about the economy.
• We see a bit of complacency considering the still fragile point of the cycle, and with (geo)political risk lurking, bullish investor sentiment and positioning, as well as depressed risk asset volatility.
• Our underweights (UW) in Equities and High Yield (HY) credit are small, but we prefer safer Investment Grade (IG) buckets in Fixed Income and retain a tactical cash overweight.

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