A continuation of last week’s twin slump in US “risk-free” real government bond yields and global high-yield credit spreads would be a relative boon for comparatively rate-sensitive, cyclical sectors of the MSCI World Index. However, our view is that over the next three to six months “risk-free” rates won’t fall much further while credit spreads rebound amid a deteriorating economic backdrop. The upshot is that we think defensive sectors of the stock market may hold up best in that time.
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