Credit Environment Supportive Compared to Last Year’s Hike
It took a whole year but the Federal Reserve finally managed to get the second interest rate hike of this hiking cycle. The hike was almost universally expected and investors focused on the Fed’s future hiking plans. The number of hikes expected by the Committee in 2017 shifted higher from 2 hikes to 3 hikes clearly sending a hawkish signal. The US Dollar strengthened after the meeting as ECB and Bank of Japan still remain in easy money mode.
Looking at the macro environment today it is much more supportive of a hike compared to last December. Last year the Fed hiked into a deteriorating credit environment where high yield spreads were at multi-year highs. Today is a different story with high yield spreads at 52-week lows and improving, see the following chart from Strategas Research Partners: