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Q3 Seix Investment Grade and Tax-Exempt Fixed Income

Virtus Viewpoints:
Trade Slows, Economy Cools, Credit Soars, Repos Spike, and Munis Rock

  • Economic jitters increased in Q3, prompting two Federal Reserve rate cuts as the effects of a global slowdown moved beyond manufacturing, setting the stage for one or two more rate cuts by the end of the year, depending on the data flow between now and December.

  • A continued slowdown in China, which has been responsible for about a third of global growth directly and more than half indirectly since the great financial crisis, could dampen growth in the rest of the world. Against that backdrop, increased leverage has led to a considerable deterioration in the overall quality of the investment grade corporate bond universe.

  • Municipal bond funds continued to enjoy extraordinary demand during the summer as investors sought attractive yields from a limited supply of tax-exempt bonds in a declining rate environment.

  • After the Federal Reserve cut rates twice in the quarter, quality spreads continued to tighten as a lot of money flowed into high yield muni funds, which have been very popular.

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The commentary is the opinion of the subadviser. This material has been prepared using sources of information generally believed to be reliable; however, its accuracy is not guaranteed. Opinions represented are subject to change and should not be considered investment advice or an offer of securities.

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