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Global Fixed Income Bulletin
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October 15, 2021

Who Let the Hawks Out?

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October 15, 2021

Who Let the Hawks Out?


Global Fixed Income Bulletin

Who Let the Hawks Out?

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October 15, 2021

 
 

Having enjoyed a decade of equity and bond prices generally rising together, investors have more recently had to deal with the less pleasant situation of both bonds and shares going down together. The reason for this is the growing concern that central banks, for a long time perceived as a backstop to financial markets, may have to start tightening policy, even as the economy weakens, because inflation risks are rising and need to be brought under control. Stagflation, a bad environment for most assets, is increasingly discussed as a possibility.

 
 

While there might be some truth to this narrative, it is not entirely true, or at the very least glosses over a lot of nuances. Yes, the acceleration in economic growth is slowing; yes, central banks are clearly planning to reduce monetary accommodation; and yes, higher inflation may lead them to tighten policy quicker and further than they might otherwise would. However, the global economy is still expected to post above-average growth this year and next, so stagflation (depending on how you define it) seems unlikely. Central banks are moving to tighten policy (the Norges Bank and Reserve Bank of New Zealand (RBNZ) have already raised rates), but this is more a removal of extraordinary monetary accommodation, implemented due to the COVID crisis, rather than a desire to make policy restrictive. And central banks have been at pains to emphasize that they see the current surge in inflation as largely transitory rather than something they are responding to. So, while central bankers might be sounding less dovish than they did before (unsurprising given the quicker than expected economic recovery), it generally doesn’t sound fair to describe them as hawks either.

However, there is a risk that monetary policy normalization may happen quicker than in the past. In the 2010s, central bankers with faster growing economies (e.g., the Federal Reserve and the Bank of England) were held back from raising rates as much as they might by other central banks which were not tightening (e.g., the European Central Bank (ECB) and Bank of Japan). This was due to the FX markets: central banks which raised interest rates saw their currencies appreciate, which tightened monetary conditions and reduced the need for further rate hikes. Some analysts named this the “central bank peloton” because, as in cycling, individuals found it very difficult to break away from the pack. This time around, though, with economies recovering in a synchronized fashion following COVID lockdowns, the entire peloton is turning less dovish at the same time, meaning central banks wanting to tighten will be less constrained by their peers. It also suggests that currency markets may be more difficult to read, as interest rate and growth differentials are less pronounced.

On balance, we expect central banks to proceed slowly and with caution, but this could still lead to volatility in markets, depending on what investors expect. Even though markets have priced the beginning of rate hiking cycles, they are expecting slow and low cycles, stopping well below previous highs in policy rates. If investors change their mind on this, for example because higher inflation appears to become more entrenched and the economy remains resilient, bond yields might need to rise considerably. In credit markets, spreads are still below long-term averages; this seems justified given the benign economic outlook, and stronger corporate and household balance sheets, but even a minor deterioration in credit conditions could impact valuations, and there are concerns about how markets will cope once central bank support programs end. In short, we believe the risks stem more from investors assuming very benign conditions will persist rather than central banks being very aggressive. Of course, the “central bank put” could still come into play, with tightening measures delayed or cancelled if markets wobble too much, but the pace of normalization will primarily depend on the state of the economy.

In terms of our market views, we have generally been reducing portfolio risk given the uncertain outlook. We remain long risky assets (corporate credit, securitized credit, emerging markets) because of the positive economic outlook and strong fundamentals, and in spite of credit spreads being tight relative to history. We expect government bond yields to drift higher as we move towards tighter monetary policy.

 
 
 
Display 1: Asset Performance Year-to-Date
 

Note: USD-based performance. Source: Bloomberg. Data as of September 30, 2021. The indexes are provided for illustrative purposes only and are not meant to depict the performance of a specific investment. Past performance is no guarantee of future results. See disclosures section below for index definitions.

 
 
Display 2: Currency Monthly Changes Versus U.S. Dollar
 

Note: Positive change means appreciation of the currency against the USD. Source: Bloomberg. Data as of September 30, 2021.

 
 
 
Display 3: Major Monthly Changes in 10-Year Yields and Spreads
 

Source: Bloomberg, JPMorgan. Data as of September 30, 2021.

 
 

Fixed Income Outlook

September turned out to be a far less benign month for financial markets than August, with both government bond yields rising and equities selling off. The price action has continued so far in October, with notable weakness in corporate credit and emerging markets. As is typical, given the price action, the U.S.  dollar has appreciated on a trade-weighted basis. The reason for this weakness in financial markets is easy to identify: economic growth surprises have turned negative while inflation continues to surprise to the upside. This spells a potentially unfriendly scenario for markets: central banks tightening monetary policy just as the economy starts to slow. Indeed, in addition to several emerging market central banks tightening policy, the Norges Bank and RBNZ have both recently implemented their first rate hikes since the COVID epidemic struck. While none of these banks are big enough to significantly affect global liquidity conditions, their behavior is indicative of the direction in which the larger central banks are moving, given central banks tend to move together. Some of the more gloomy analysts are already talking about a stagflation.

We think some of these concerns are overstated. In particular, stagflation (an environment of high inflation and low growth or recession), still seems unlikely as the economic data still point to exceptionally strong global growth in 2021 continuing into 2022. Yes, economic data are no longer (on average) surprising to the upside, and economies are not accelerating further. However, timely indicators of growth, such as business survey indices, remain consistent with above average growth rates, so there is little evidence of a slowdown, and it was always going to be difficult for growth to keep on accelerating as it came out of lockdown. One point of concern is the state of the Chinese economy and the risk of defaults in its real estate sector, but so far it would appear the authorities are maintaining their typical tight control of the situation.

However, inflationary pressures are growing stronger. The most recent surge has come from higher energy prices (especially European natural gas prices), but the pressure is more broad-based: many other commodities (e.g., food, a particular concern for EM central banks) are also at multi-year highs; COVID-induced bottlenecks continue to cause shortages in many consumer goods supply chains, and there are widespread reports of labor shortages across developed economies. It is currently unclear just how persistent, or permanent, many of these issues are, but what is certain is that the current surge in inflation is expected to last longer than previously thought, with economists now forecasting it will only return to more normal levels towards the end of 2022.

So far developed economy central banks have remained adamant that the inflation surge is transitory and is not something to respond to, although some (such as the ECB) have said they will remain vigilant to it causing “second round effects” and a more persistent increase. Medium term inflation expectations have risen, but are still only returning to levels which suggest investors and households think central banks will achieve their inflation mandates. So, there is little need for them to go into inflation-fighting mode just yet, but the inflation data clearly introduces a hawkish risk to policy. Emerging market central banks are already tightening, given the risk inflation poses to their economies through the currency markets, but they now face the risk of choking a still nascent, weak recovery.

Bond investors are clearly rethinking just how accommodative central banks will be. One factor to consider is that, while no developed market central bank has sounded extremely hawkish, they are all clearly moving in the same direction. This is important because, to use the cycling analogy, monetary policy in recent years has been like a peloton of cyclists from which it is very difficult for an individual bank to break free and set tighter monetary policy (because this would lead to a stronger currency and remove the need to tighten). However, if all are moving in a tightening direction, then it is easier for individual central banks to end their COVID crisis programs and start raising rates.

Central banks are still communicating a slowly-slowly approach, which we think the markets have priced appropriately. However, the risk to bond valuations comes more from the length of the hiking cycle and the eventual terminal policy rate. At present investors seem to think the tightening cycles will be short, lasting only a few years and not taking policy rates back to historical levels. But if they start expecting a more normal central bank cycle, then yields could rise further. Credit investors have also become more nervous recently, causing credit spreads to widen; we think this is mainly reflective of how tight spreads had become rather than any meaningful increase in default risk.

Where does this leave our views on markets? In general, we remain overweight the riskier, cyclical sectors but we have been reducing portfolio risk. On government bonds, we expect yields to drift higher and have been reducing duration exposure. We have also reduced our underweight to U.S.  dollar with not a strong conviction on direction in the short to medium term. We remain overweight corporate credit and securitized credit. We are overweight emerging markets, for idiosyncratic reasons rather than a general preference for the asset class.

Developed Market (DM) Rate/Foreign Currency (FX)

Monthly Review

In September, we saw bond yields rising globally along with risk assets selling off. On the back of weakness in risk sentiment, the U.S.  dollar rose against both developed market and emerging market currencies over the month. While growth surprises have turned negative, inflation continues to surprise to the upside globally. Central banks started reducing excess accommodation instituted last year, by raising interest rates or signaling a shift towards less easy policy as economies normalize. Norges Bank became the first developed market central bank to hike policy rate this year.

Outlook

During the final quarter of 2021, policy is still expected to be a dominant driver of asset performance, but the recovery in the economy to date means that policymakers are eyeing how they will dial back emergency support measures without threatening the economic recovery. We expect global central banks to continue removing excess accommodation as growth and inflation outlook improves over the coming months.

While we do not expect a dramatic sell-off in government bond markets, we think the risk is skewed to yields rising, as markets price in the path to monetary policy normalization. We expect inflation to remain high for some time, with year-over-year rates only declining in 2H22. It is still our view that the surge is mainly transitory, due to technical factors, higher commodity prices, and temporary bottlenecks in the economy.

In terms of currencies, we expect U.S. dollar to remain range bound against developed market and emerging market currencies and don’t have a strong conviction on direction in the short to medium term. We have been reducing the U.S. dollar underweight against developed market and emerging market currencies.

Emerging Market (EM) Rate/FX                                             

Monthly Review

EM debt returns were negative in September. Hard currency sovereigns, as represented by the JPM EMBI Global Diversified Index, delivered negative returns, driven by wider spreads and yields. EM Corporate returns were also negative for the month with high yield underperforming investment grade corporates (proxied by the JPM CEMBI Broad Diversified Index. Local currency bonds, represented by the JPM GBI-EM Global Diversified Index posted negative returns, primarily due to weaker EM currencies versus the U.S. dollar.

Outlook

The outlook for EM debt in the weeks ahead looks challenging, as the asset class faces multiple disruptive forces. The prospects of Fed tapering as early as November and its impact on real yields and the USD may weigh on EM asset performance. We remain cautious on risk in the near term, despite valuations being generally attractive. We are biased towards EM High Yield credits with positive idiosyncratic stories and/or exposed to higher oil prices (and similarly, in EMFX). In rates, we prefer yield curves that are already pricing in aggressive monetary policy tightening.

Credit

Monthly Review

Credit spreads over the month were broadly unchanged in Europe and tightened slightly in the U.S. Sector and corporate news in the month remained dominated by M&A and higher costs driven by structural shortages in both labour and transportation. Global convertibles, as measured by the Refinitiv Global Convertibles Focus Index, held up in difficult markets in September, outperforming both equity and credit.

Outlook

Looking forward, we see credit as fully valued but likely to consolidate at current levels supported by the four pillars of: (1) expectations that financial conditions will remain easy supporting low default rates (2) economic activity that is expected to rebound as vaccinations allow economies to re-open (3) strong corporate profitability with conservative balance sheet management as overall uncertainty remains high (4) demand for credit to stay strong as excess liquidity looks to be invested. We expect good ability to earn attractive carry but see limited opportunities for capital gains from spread tightening.

Securitized Products

Monthly Review

Market activity increased in September both in terms of new issuance and secondary trading. There was nearly $50 billion of new issue activity across Residential Mortgage Backed Securities (RMBS) Mortgage Backed Securities (MBS), Commercial Mortgage Backed Securities (CMBS) and Asset Backed Securities (ABS) markets, highest volume of the year, but supply was comfortably absorbed. Agency MBS performed well in September, as bank buying increased with the steeper curve and Fed buying continued. U.S. non-agency RMBS spreads were essentially unchanged in September. U.S. ABS spreads were slightly tighter again in September while U.S. CMBS spreads were largely unchanged. European RMBS, CMBS and ABS activity also increased in September as much of Europe returned from holiday. European securitized spreads continued to tighten in September, despite talk of the ECB potentially reducing its asset purchases.

Outlook

We believe the securitized market offers a unique combination of low duration, attractive yields, and solid credit fundamentals. We expect securitized new issuance and secondary activity to remain robust in October. Rates volatility will likely remain elevated, but credit fundamentals should remain very solid, especially for residential and consumer assets.

 
 

The views and opinions expressed are those of the Portfolio Management team as of August 2021 and are subject to change based on market, economic and other conditions. Past performance is not indicative of future results.


 
 

RISK CONSIDERATIONS

Diversification neither assures a profit nor guarantees against loss in a declining market.

There is no assurance that a portfolio will achieve its investment objective. Portfolios are subject to market risk, which is the possibility that the market values of securities owned by the portfolio will decline and that the value of portfolio shares may therefore be less than what you paid for them. Market values can change daily due to economic and other events (e.g. natural disasters, health crises, terrorism, conflicts and social unrest) that affect markets, countries, companies or governments. It is difficult to predict the timing, duration, and potential adverse effects (e.g. portfolio liquidity) of events. Accordingly, you can lose money investing in a portfolio. Fixed-income securities are subject to the ability of an issuer to make timely principal and interest payments (credit risk), changes in interest rates (interest rate risk), the creditworthiness of the issuer and general market liquidity (market risk). In a rising interest-rate environment, bond prices may fall and may result in periods of volatility and increased portfolio redemptions. In a declining interest-rate environment, the portfolio may generate less income. Longer-term securities may be more sensitive to interest rate changes. Certain U.S. government securities purchased by the strategy, such as those issued by Fannie Mae and Freddie Mac, are not backed by the full faith and credit of the U.S. It is possible that these issuers will not have the funds to meet their payment obligations in the future. Public bank loans are subject to liquidity risk and the credit risks of lower-rated securities. High-yield securities (junk bonds) are lower-rated securities that may have a higher degree of credit and liquidity risk. Sovereign debt securities are subject to default risk. Mortgage- and asset-backed securities are sensitive to early prepayment risk and a higher risk of default, and may be hard to value and difficult to sell (liquidity risk). They are also subject to credit, market and interest rate risks. The currency market is highly volatile. Prices in these markets are influenced by, among other things, changing supply and demand for a particular currency; trade; fiscal, money and domestic or foreign exchange control programs and policies; and changes in domestic and foreign interest rates. Investments in foreign markets entail special risks such as currency, political, economic and market risks. The risks of investing in emerging market countries are greater than the risks generally associated with foreign investments. Derivative instruments may disproportionately increase losses and have a significant impact on performance. They also may be subject to counterparty, liquidity, valuation, and correlation and market risks. Restricted and illiquid securities may be more difficult to sell and value than publicly traded securities (liquidity risk). Due to the possibility that prepayments will alter the cash flows on collateralized mortgage obligations (CMOs), it is not possible to determine in advance their final maturity date or average life. In addition, if the collateral securing the CMOs or any third-party guarantees are insufficient to make payments, the portfolio could sustain a loss.

 
 
 
The Global Fixed Income team follows a seamless process with a global outlook. They seek to identify and capture the potential value in situations where the market's implied forecasts are extreme.
 
 
 
Featured Fund
 
 
 
 
 

DEFINITIONS

R* is the real short term interest rate that would occur when the economy is at equilibrium, meaning that unemployment is at the neutral rate and inflation is at the target rate. Basis point: One basis point = 0.01%.

INDEX DEFINITIONS

The indexes shown in this report are not meant to depict the performance of any specific investment, and the indexes shown do not include any expenses, fees or sales charges, which would lower performance. The indexes shown are unmanaged and should not be considered an investment. It is not possible to invest directly in an index.

The Bloomberg Euro Aggregate Corporate Index (Bloomberg Euro IG Corporate) is an index designed to reflect the performance of the euro-denominated investment-grade corporate bond market.

The Bloomberg Global Aggregate Corporate Index is the corporate component of the Bloomberg Global Aggregate index, which provides a broad-based measure of the global investment-grade fixed income markets.

The Bloomberg U.S. Corporate High Yield Index measures the market of USD-denominated, non-investment grade, fixed-rate, taxable corporate bonds. Securities are classified as high yield if the middle rating of Moody’s, Fitch, and S&P is Ba1/BB+/BB+ or below. The index excludes emerging market debt.

The Bloomberg U.S. Corporate Index is a broad-based benchmark that measures the investment grade, fixed-rate, taxable, corporate bond market.

The Bloomberg U.S. Mortgage Backed Securities (MBS) Index tracks agency mortgage-backed pass-through securities (both fixed-rate and hybrid ARM) guaranteed by Ginnie Mae (GNMA), Fannie Mae (FNMA) and Freddie Mac (FHLMC). The index is constructed by grouping individual TBA-deliverable MBS pools into aggregates or generics based on program, coupon and vintage. Introduced in 1985, the GNMA, FHLMC and FNMA fixed-rate indexes for 30- and 15-year securities were backdated to January 1976, May 1977 and November 1982, respectively. In April 2007, agency hybrid adjustable-rate mortgage (ARM) pass-through securities were added to the index.

Consumer Price Index (CPI) is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care.

Euro vs. USD—Euro total return versus U.S. dollar.

German 10YR bonds—Germany Benchmark 10-Year Datastream Government Index; Japan 10YR government bonds —Japan Benchmark 10-Year Datastream Government Index; and 10YR U.S. Treasury—U.S. Benchmark 10-Year Datastream Government Index.

The ICE BofAML European Currency High-Yield Constrained Index (ICE BofAML Euro HY constrained) is designed to track the performance of euro- and British pound sterling-denominated below investment-grade corporate debt publicly issued in the eurobond, sterling

The ICE BofAML U.S. Mortgage-Backed Securities (ICE BofAML U.S. Mortgage Master) Index tracks the performance of U.S. dollar-denominated, fixed-rate and hybrid residential mortgage pass-through securities publicly issued by U.S. agencies in the U.S. domestic market.

The ICE BofAML U.S. High Yield Master II Constrained Index (ICE BofAML U.S. High Yield) is a market value-weighted index of all domestic and Yankee high-yield bonds, including deferred-interest bonds and payment-in-kind securities. Its securities have maturities of one year or more and a credit rating lower than BBB-/Baa3, but are not in default.

The ISM Manufacturing Index is based on surveys of more than 300 manufacturing firms by the Institute of Supply Management. The ISM Manufacturing Index monitors employment, production inventories, new orders and supplier deliveries. A composite diffusion index is created that monitors conditions in national manufacturing based on the data from these surveys.

Italy 10-Year Government Bonds—Italy Benchmark 10-Year Datastream Government Index.

The JP Morgan CEMBI Broad Diversified Index is a global, liquid corporate emerging markets benchmark that tracks U.S.-denominated corporate bonds issued by emerging markets entities.

The JPMorgan Government Bond Index—emerging markets (JPM local EM debt) tracks local currency bonds issued by emerging market governments. The index is positioned as the investable benchmark that includes only those countries that are accessible by most of the international investor base (excludes China and India as of September 2013).

The JPMorgan Government Bond Index Emerging Markets (JPM External EM Debt) tracks local currency bonds issued by emerging market governments. The index is positioned as the investable benchmark that includes only those countries that are accessible by most of the international investor base (excludes China and India as of September 2013).

The JP Morgan Emerging Markets Bond Index Global (EMBI Global) tracks total returns for traded external debt instruments in the emerging markets and is an expanded version of the EMBI+. As with the EMBI+, the EMBI Global includes U.S. dollar-denominated Brady bonds, loans and eurobonds with an outstanding face value of at least $500 million.

The JP Morgan GBI-EM Global Diversified Index is a market-capitalization weighted, liquid global benchmark for U.S.-dollar corporate emerging market bonds representing Asia, Latin America, Europe and the Middle East/Africa.

JPY vs. USD—Japanese yen total return versus U.S. dollar.

The Nikkei 225 Index (Japan Nikkei 225) is a price-weighted index of Japan’s top 225 blue-chip companies on the Tokyo Stock Exchange.

The MSCI AC Asia ex-Japan Index (MSCI Asia ex-Japan) captures large- and mid-cap representation across two of three developed markets countries (excluding Japan) and eight emerging markets countries in Asia.

The MSCI All Country World Index (ACWI, MSCI global equities) is a free float-adjusted market capitalization weighted index designed to measure the equity market performance of developed and emerging markets. The term "free float" represents the portion of shares outstanding that are deemed to be available for purchase in the public equity markets by investors. The performance of the Index is listed in U.S. dollars and assumes reinvestment of net dividends.

MSCI Emerging Markets Index (MSCI emerging equities) captures large- and mid-cap representation across 23 emerging markets (EM) countries.

The MSCI World Index (MSCI developed equities) captures large and mid-cap representation across 23 developed market (DM) countries.

Purchasing Managers Index (PMI) is an indicator of the economic health of the manufacturing sector.

The Russell 2000® Index is an index that measures the performance of the 2,000 smallest companies in the Russell 3000 Index.

The S&P 500® Index (U.S. S&P 500) measures the performance of the large-cap segment of the U.S. equities market, covering approximately 75 percent of the U.S. equities market. The index includes 500 leading companies in leading industries of the U.S. economy.

S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index seeks to measure the value of residential real estate in 20 major U.S. metropolitan areas: Atlanta, Boston, Charlotte, Chicago, Cleveland, Dallas, Denver, Detroit, Las Vegas, Los Angeles, Miami, Minneapolis, New York, Phoenix, Portland, San Diego, San Francisco, Seattle, Tampa and Washington, D.C.

The S&P/LSTA U.S. Leveraged Loan 100 Index (S&P/LSTA Leveraged Loan Index) is designed to reflect the performance of the largest facilities in the leveraged loan market.

The S&P GSCI Copper Index (Copper), a sub-index of the S&P GSCI, provides investors with a reliable and publicly available benchmark for investment performance in the copper commodity market.

The S&P GSCI Softs (GSCI soft commodities) Index is a sub-index of the S&P GSCI that measures the performance of only the soft commodities, weighted on a world production basis. In 2012, the S&P GSCI Softs Index included the following commodities: coffee, sugar, cocoa and cotton.

Spain 10-Year Government Bonds—Spain Benchmark 10-Year Datastream Government Index.

The Thomson Reuters Convertible Global Focus USD Hedged Index is a market weighted index with a minimum size for inclusion of $500 million (U.S.), 200 million euro (Europe), 22 billion yen, and $275 million (Other) of convertible bonds with an equity link.

U.K. 10YR government bonds—U.K. Benchmark 10-Year Datastream Government Index. For the following Datastream government bond indexes, benchmark indexes are based on single bonds. The bond chosen for each series is the most representative bond available for the given maturity band at each point in time. Benchmarks are selected according to the accepted conventions within each market. Generally, the benchmark bond is the latest issue within the given maturity band; consideration is also given to yield, liquidity, issue size and coupon.

The U.S. Dollar Index (DXY) is an index of the value of the United States dollar relative to a basket of foreign currencies, often referred to as a basket of U.S. trade partners’ currencies.

The Chicago Board Options Exchange (CBOE) Market Volatility (VIX) Index shows the market’s expectation of 30-day volatility.

“Bloomberg®” and the Bloomberg Index/Indices used are service marks of Bloomberg Finance L.P. and its affiliates, and have been licensed for use for certain purposes by Morgan Stanley Investment Management (MSIM). Bloomberg is not affiliated with MSIM, does not approve, endorse, review, or recommend any product, and. does not guarantee the timeliness, accurateness, or completeness of any data or information relating to any product.

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IMPORTANT INFORMATION

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There is no guarantee that any investment strategy will work under all market conditions, and each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market. Prior to investing, investors should carefully review the strategy’s / product’s relevant offering document. There are important differences in how the strategy is carried out in each of the investment vehicles.

A separately managed account may not be appropriate for all investors.

Separate accounts managed according to the Strategy include a number of securities and will not necessarily track the performance of any index. Please consider the investment objectives, risks and fees of the Strategy carefully before investing.

The views and opinions are those of the author or the investment team as of the date of preparation of this material and are subject to change at any time due to market or economic conditions and may not necessarily come to pass. Furthermore, the views will not be updated or otherwise revised to reflect information that subsequently becomes available or circumstances existing, or changes occurring, after the date of publication. The views expressed do not reflect the opinions of all investment teams at Morgan Stanley Investment Management (MSIM) or the views of the firm as a whole, and may not be reflected in all the strategies and products that the Firm offers.

Forecasts and/or estimates provided herein are subject to change and may not actually come to pass. Information regarding expected market returns and market outlooks is based on the research, analysis and opinions of the authors. These conclusions are speculative in nature, may not come to pass and are not intended to predict the future performance of any specific Morgan Stanley Investment Management product.

Certain information herein is based on data obtained from third party sources believed to be reliable. However, we have not verified this information, and we make no representations whatsoever as to its accuracy or completeness.

This communication is not a product of Morgan Stanley’s Research Department and should not be regarded as a research recommendation. The information contained herein has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This material is a general communication, which is not impartial and has been prepared solely for informational and educational purposes and does not constitute an offer or a recommendation to buy or sell any particular security or to adopt any specific investment strategy. All investments involve risks, including the possible loss of principal. The information herein has not been based on a consideration of any individual investor circumstances and is not investment advice, nor should it be construed in any way as tax, accounting, legal or regulatory advice. To that end, investors should seek independent legal and financial advice, including advice as to tax consequences, before making any investment decision.

Any index referred to herein is the intellectual property (including registered trademarks) of the applicable licensor. Any product based on an index is in no way sponsored, endorsed, sold or promoted by the applicable licensor and it shall not have any liability with respect thereto.

MSIM has not authorised financial intermediaries to use and to distribute this document, unless such use and distribution is made in accordance with applicable law and regulation. Additionally, financial intermediaries are required to satisfy themselves that the information in this document is appropriate for any person to whom they provide this document in view of that person’s circumstances and purpose. MSIM shall not be liable for, and accepts no liability for, the use or misuse of this document by any such financial intermediary.

This document may be translated into other languages. Where such a translation is made this English version remains definitive. If there are any discrepancies between the English version and any version of this document in another language, the English version shall prevail.

The whole or any part of this work may not be directly or indirectly reproduced, copied, modified, used to create a derivative work, performed, displayed, published, posted, licensed, framed, distributed, or transmitted or any of its contents disclosed to third parties without MSIM’s express written consent. The work may not be linked to unless such hyperlink is for personal and non-commercial use. All information contained herein is proprietary and is protected under copyright law.

Morgan Stanley Investment Management is the asset management division of Morgan Stanley.

 

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