Over the past few months, we had been looking for opportunities to add to our lean risk budget. Our problem was not with fundamentals but with prices. The global economy seemed on track to deliver modestly above trend real GDP growth that would push up inflation modestly in the fullness of time. Data mostly supported our view that a more synchronous global expansion would lead the Federal Reserve to continue to normalize its monetary policy and eventually draw in a few colleague central banks to join the party.
A few missiles over the horizon and a flurry of tweets concentrated the attention of investors that the bad things that can happen are really bad and more probable than previously contemplated (although still, we hope, remote). The dip in Treasury yields and widening of credit spreads sparked by those concerns afforded an opportunity to add to the risk budget, which we took.
So, where are we now?