Tail risks: neutral
For 2022, we see several potential tail risks. These include:
- The COVID Omicron variant or any subsequent variants of concern;
- More persistent inflation resulting in faster-than-expected tapering or interest-rate hiking by the Fed and other central banks; and
- Geopolitical risks, particularly increased China-Taiwan frictions given the global supply-chain implications.
However, we acknowledge that these risks are not unique to the high-yield market and, to the extent that they are known, are likely to be priced in already.
In summary, we expect 2022 to be a year of sideways moves but with potentially lots of volatility along the way. We therefore believe being able to dynamically adjust risk positioning as needed in the event of significant price volatility will be critical.