Hello and welcome. My name is Tim Leary, and I'm a senior portfolio manager on BlueBay US Leveraged Finance team in Stamford, Connecticut. I'd like to thank you for joining us today on the US Fixed Income Investment Perspectives Webinar 2025, Hawks and Doves: how would a fed pivot rattle birdcages across fixed income? I hope you find today's discussion to be insightful as we explore the impact of possible Fed rate cuts within US fixed income markets across the credit risk spectrum.

For more fixed income insights, be sure to click on the links at the bottom of your screen. Before I introduce today's speakers, a bit of housekeeping. If you have questions throughout the discussion today, please visit slido.com and enter code USFI25. We received several questions from the audience already, and we'll do our best to weave the answers to these questions into our discussion.

Today I'm pleased to be joined by Andrzej Skiba, head of BlueBay US Fixed Income and senior portfolio manager with the US fixed income team on the BlueBay desk in the United States based in Stamford, and also Laurie Mount, portfolio manager at the BlueBay investment team within GAM in Minneapolis. And she's a portfolio manager on our cash management solutions, including money markets.

So let's kick off. Andrzej, as the lead US fixed income portfolio manager within RBC GAM, let's start with you. We can't talk about the Fed without talking about tariffs and Trump. So what is your take on Trump's approach to tariffs thus far?

Well, it's definitely been a bit of a roller coaster over the recent weeks. With threats of 20% tariffs on Canada and Mexico, tariffs imposed on China and then moving back and forth on those threats. You know, from our perspective, the outcome of this trade escalation is of key importance to the direction of travel for fixed income markets because, it's the trade war that can have the largest implications for inflation and Fed policy in 2025 and beyond.

So, looking at the situation, we're coming into the election with the view that escalation of tariffs is very important to Trump. Pretty much in every single stump speech President Trump was highlighting how this can be a powerful source of revenues for the US and touting all the benefits of tariffs to US economy.

Whether you agree with that from an economic standpoint or not, the fact of the matter was that President Trump passionately believes it's a net positive for the US. So following the election, our expectation has been that we will see a broad global trade escalation, with tariffs imposed on most trade partners and most goods over the course of 2025, something that could have a meaningful impact, upward impact on, inflation.

So far, we've seen, a mix of threats, very transactional outcomes. And, we're kind of at a crossroads right now. So, many market participants are looking at current situation, coming to a conclusion that tariffs are more of a threat that is aimed at getting wins for the US, essentially, on a transactional basis, whether that's through immigration, as was the case with Colombia, or it's to do with strengthening borders, as with the commitments made by Mexico and Canada.

But where we disagree with a lot of market participants, is in the view that the worst is behind us. There is this view starting to emerge that the initial threat of 25% tariffs followed by a 30 day reprieve is essentially taking us closer to the resolution of this conflict and actually, what will happen in the end will be quite benign.

That is not our view. Our view is that investors should look at this situation through the lens of 25% tariffs being kind of the worst possible outcome when either countries retaliate against the US or there are no particular wins on the horizon that the US can see. With 10% tariffs being actually the positive outcome. So if parties cooperate, then we will see tariffs imposed at that level. And that's quite a big difference compared to most market participants expecting minimal or selective tariffs. And actually not a big impact in terms of trade relations globally. So for us, the downside scenario is a broad imposition of 25%. And extending that beyond, for example, Mexico and Canada, but to include also say, European Union. And the upside is 10% as the final destination, and that in its own right, will be quite a massive increase in trade burdens on a global basis. And that also will be inflationary. So in the initial stage, we would expect executive orders, emergency powers that President Trump has, to be used in this trade scuffle and eventually to see universal tariffs that are legislated, that might take some time to push through Congress, whether that's through reconciliation or other means, to be embedded.

So essentially the core of our message is that it's been very volatile in terms of news flow over the recent few weeks. But we're not close to the end of the scuffle. In our view, market is becoming too complacent that the worst is behind us. And actually, this is just the beginning of a period over the coming months where we will come to a realization that the tariffs will be put in place on most trade partners at levels that are material to global trade and inflation outlook in various jurisdictions.

And do you think this will effectively look like a VAT or VAT tax in practice once the dust settles?

Well, we know for sure that many members of this administration are looking at tariffs through that lens. And, as this administration is considering aggressive tax cuts, deregulation, there are some offsets to that. And this is seen as one of, one of the offsets. So it actually fits into the policy outlook that Trump team has put in place.

Wonderful. So shifting gears to Laurie, and the impact on money markets, perhaps we could set the stage a little bit. How big is the money market environment right now?

Well it's in excess of $7 trillion. And we did see that grow throughout 2024 as we were coming into the election. We saw assets into the asset class peaking through that $7 billion mark ahead of the election.

And since the election now we have really seen just really stabilization around that. So we're covering you know, plus or minus $7 trillion, I believe, I mean, I said billion I retract that, I mean $7 trillion. And I think really what that shows is in line with what others are saying, just this uncertainty that's ahead of us is that people are really seeking that safe haven, if you will, in money market.

And as we look forward to what is, you know, on the horizon rate wise, you know, you can buy 2 year fixed Treasury right now at about the same level as you can get a money market with that liquidity and the assets parked there for when we do have some clarity as to where markets are heading.

And you get the sense from your investor base that they are flocking towards money market because they're concerned about tariffs in particular, or is there, is there an underlying technical driving that flow?

I think its tariffs combined just again with that uncertainty. So as we look at what rises ahead you know you've got the volatility of what's going on amongst immigration, we have a strong jobs market, inflation is sticky. So there's really not a clear path at least in the short end where rates are going. So instead of, you know, putting those assets to work further out the curve, you know, again, they're just parking there and waiting to see what happens.

And you know, we have seen all along throughout 2024 where the Fed and the markets were really in disagreement and no clear consistency as to where things were going. So rather than, you know, take a bet on what was going on, people really hung out in cash, if you will, just to see what was going on before they decided.

And then as we started to see some clarity late 2024, with the Fed starting to cut rates, there was some clarity as to what was going on. And we did see overall some extension in duration, although not a lot, as portfolio managers decided to put that to work and extend out a little bit more.

And when you say extend out duration within the money market construct, you're thinking about going from overnight effectively to two years at most, right?

So within the confines of what we're able to invest in, in floating rate space, we can go out to a two year floater, fixed rate we have a max maturity of 397 days.

So looking within that universe, we can buy, bullets. So, agency bullets, home loan, farm credit and such. We can buy fixed rate notes. And we can buy T-bills out to that space. So in addition, within that tool chest, we have opportunity to purchase repo, whether it's overnight or term that out for a little bit of a pick up on that.

But again, you know, really falling in the confines of those investment parameters that regulate all money market funds. So all money market funds are playing under those same rules with those max maturities.

And, you know, sticking with the theme of inflation, today we received the January nonfarm payroll number as well as the University of Michigan survey.

To make a long story short, Americans are employed and expect inflation to remain elevated for some period of time. Now, I'd be remiss to make too much out of one day's data point. Clearly the Fed is going to remain data dependent. Inflation is front and center. So, Andrzej, as you think about inflation, what elements of it are you most focused on?

So when we look at inflation, there are some aspects that are moving in the right direction. And there are some that are concerning to us. So let's start with the good news. When it comes to inflation, we've definitely, after a long wait, started seeing a lot of progress in terms of shelter inflation that has moderated quite a lot.

And that's helping to bring down core inflation in the US. Having said that, when you look at the recent readings, we're not seeing a ton of progress in terms of getting towards the 2% objective. We are seeing inflation stuck in mid-high twos, on the core reading. And even with the benefit of lower shelter inflation, there are some offsets elsewhere.

So from our perspective, the Fed is in a bit of a tricky situation because even ignoring the trade scuffles and the new administration policy mix, we started slowing down in terms of moderating inflation. We're not seeing the gains, the lowering of inflation readings, that Fed would like to see. And that's one of the key reasons why after cutting rates by 100 basis points, Fed is comfortable with sitting and watching how things unfold from a data perspective.

Looking ahead though, there are quite a lot of concerns on the horizon. When you look at Trump administration policy mix, you have two aspects that could be quite inflationary. The first one is to do with immigration. And if we see aggressive immigration curbs, that could have an inflationary impact over the coming year. But even more so, it's to do with the trade war that we've just discussed.

If we see even a more benign scenario, in our book essentially, where you have 10% tariffs on most trade partners, assuming retaliation from many, that would lift headline inflation by up to one percentage point over the coming year. And one percentage point doesn't sound like a lot, but from Fed’s perspective, one percentage point can make all the difference between being able to cut rates and not.

So, we are concerned that inflation will remain sticky, that some of the gains that we're seeing on shelter inflation will be offset by pressures coming from the new policy mix. And, that is definitely not something that fixed income investors want to see with so much focus on the timing of bringing inflation towards Fed's 2% objective. And in our view, that being quite far away.

So let's stick with one of the aspects that we brought up on immigration. And it's fascinating. It's a fascinating dynamic as Americans to witness what's unfolding for a couple of reasons, one of which is the actual data and what's happening and two, how it's being reported in the press.

So let's sift through that a bit. And I'm curious on both your opinions on this. Do you expect to see large scale deportations, or will they be more limited toward those who have been convicted or indicted for a crime of some sort? And what sort of impact will that have in the economy?

Right. So it really depends, unfortunately, is the answer.

So far we're seeing focus on, removal of individuals with criminal record. And if that will be the focus over the months to come, the magnitude of those deportations is unlikely to be large enough to have any meaningful impact on the economy. You have to go beyond that, to focus on a much broader, undocumented, cohort to see an impact from an inflationary perspective, with, you know, some of the jobs that are currently filled by these individuals, you know, having to find workforce to replace those positions at a higher employment cost.

At the same time, there are some offsets, you know, to do with pressure. And, in property markets where there's a shortage of housing in many parts of the US, and that can actually help alleviate some inflationary pressures further down the line. But initially, the shock associated with having to fill a lot of positions at higher price points would be inflationary in our view.

So it really is difficult to judge at this point what kind of volume of deportations we will have. We definitely know for sure the initial focus is on those individuals with criminal records. And as the year progresses, we're going to have a lot more clarity on how large scale the broader move will be and also understand how it could work from a logistical perspective given that it could be a huge undertaking, the broader the program, the more complicated it would be.

Laurie, I'm curious through the lens of the ramifications of front end cash and really the sort of the ethos of investor spirits for lack of a better term, do they see inflation and immigration as a driver towards inflows in the money markets, or are they still looking at more of the FOMO. I'm going to, over time, take cash out of money markets and redeploy into more inflation resistant asset classes like equities and the like.

I think that it may be a combination of both of them. Again, in money market space, really most of our decisions and I think those that our investors are really looking at is what path is the Fed going to take. And the biggest fear facing everyone right now is as we look at things, most of the camp is in agreement that we are higher for longer and the Fed is in this pause rate.

But, you know, as we had talked about with the inflationary pressures of Trump policy, if we start to see things heating up and we see inflation start ticking up and the Fed has to make that decision that they need to quell inflation again, and we see potentially a rise in rates, the investor base is really looking at those and not wanting to get caught in that position.

So in money market space, we're really, really centered on where the Fed path is and what is going on, which is really driving those decisions to stay on top of the data, not go excessively long as we're looking at things, and the potential path of the Fed. So right now, with the first cut really, really not expected until the second half of the year, it's really driving where we're doing those fixed rate, investment decisions.

Overall, most money funds do have access to the Fed's reverse repo facility, which becomes our benchmark for where we're investing out. So as we take that all into consideration, it just kind of hearkens back to really what money markets are: safety, liquidity and yield. The yield is that last thing that really people are looking at is that safety, that stable NAV within a money market fund.

And knowing that if they want to take some risk and, you know, if, depending on their view of the Fed and where markets are going to invest them out, but really stick around in money markets until there is some strong conviction as to where things are going. And as Andrzej had said earlier, as you know, we're really facing a lot of volatility, uncertainty, as some of these policies work their way through the system.

Sure. So we've covered a bit about tariffs. We've covered a bit about inflation. Touched on immigration. And you rightly lead into the rate outlook. And it actually dovetails with the first question we have from the audience which is the million dollar question: will the Fed pivot in 2025 or could they possibly raise rates? Andrzej, what are your thoughts?

As things stand, we think the likelihood is quite high for no cuts this year. So assuming that tariffs imposed and let's say it's the more benign version of that, i.e. 10% broadly, then we think Fed will have to be on pause and will not be in a position to cut rates over the course of this year.

If you have a more aggressive version of the tariff outcome with multiple trade partners seeing 20% or 25% tariffs, which is not our base case, but at that point, inflationary pressures could be such that you can have a legitimate conversation about the risk of rate hikes in the US further down the year.

So for the time being, we think the market is pricing between 1 to 2 cuts this year. And as Laurie stated, starting with the second half of this year, in our view, is essentially assuming that the trade war will fizzle out, that there will be very limited inflationary impact from any selective small tariff increases. And in that world, Fed will be in a position to cut rates further as inflation moderates again, for example, thanks to lowering shelter inflation.

But in our book, that's a very glass half full version of events. So the base case, in our opinion, could well be no cuts later this year. And if the outcome of the trade escalation is on the more aggressive end, market might actually start speculating about rate hikes in the back end of this year.

So there's a lot at play and there's a lot of uncertainty for the markets to digest. The good news, however, is that we're not going to be in limbo for months on end without clarity about what is the direction of travel. Like over the next, 8 to 10 weeks, we should be in a position to determine how aggressive this administration wants to go, especially when it comes to the trade escalation.

And then Fed also should be in a position to make up their mind about the inflationary impact of that policy on their outlook. So this is not something where we have to wait for the second half of the year to gain clarity. We do believe that over the next 8 to 10 weeks, markets should be in a position to determine whether the very benign scenario that is being priced right now is the one that will happen, or the one closer to our view where Fed would be on pause, or even potential risk of some hikes if it's a more aggressive trade war scenario being on the agenda. So, that's the good news that you don't have to wait too long to make up your determination about the path of policy from here.

And so what do you think the impact on currencies will be? In a sense, if you've got a US Fed that is on hold at a time where European rates and the outlook for European rates are far more constructive as they are cutting actively, I would argue that you're going to see a strength in the dollar in that environment, as we saw in fourth quarter.

You know, as we saw duration sell off in the fourth quarter of 2024. How does that work into your positioning as it relates to not only investment grade but more broader corporate credit conversations?

Well, from a currency perspective, I agree that in an environment where we essentially stay in a higher for longer world, that will be supportive for the dollar.

So we've already seen quite a bit of strength from US dollar in recent months. So from a technical position perspective, you can argue that it's becoming a bit of a populated trade. However, you can have another period of momentum for that US exceptionalism trade being put in place through the currency markets.

But generally, as we're looking at US assets, we see them in strong demand. We observe that a lot of investors globally consider the US to be a relative safe haven in a sense that the economy is doing well, it's outperforming a lot of global peers. And, even with potential inflationary pressures that we've been discussing here, and trade escalation on the agenda, US economy is quite robust.

We do not see a recession in the US as a base case scenario over the coming 12 months. So, yes, all those trade war impacts could be negative for growth, but at the same time, you will have tax cuts. You will have deregulation, you will have increase in M&A activity, all things that are seen as positive by investors globally. So the demand for US assets remains high. And investors reflect on the fact that yields are still quite elevated by historical standards. That's one of the core appeals of US assets, even when taking into account cross-currency hedging costs.

We've got another question from the audience. And you're going to love it. They would like to know your percentage chance that there is going to be a Fed hike later this year, and they said, ‘I'm going to hold you to this’, verbatim.

Well, no pressure. But a rate hike is unlikely, in our view, because we do not think that in the context of this trade war we will end up with the maximum level of tariffs across the board. So I would put the probability of a rate hike at definitely less than 20% between now and the end of the year.

However, what is important to remember is that as the market will start considering this higher for longer environment, we always tend to overshoot in terms of market expectations. So the fact that, I might argue, that we do not see a rate hike as a base case for the remainder of the year doesn't mean that we will not go through periods when market pricing will start implying a possibility of that rate hike occurring whether that will happen or not.

And I think that's something that investors should be prepared for as they navigate through the remainder of this year. Like a lot of the times in recent years, markets were pricing in outcomes that maybe didn't actually happen. Like 2022 being a good example, where we'd been pricing in the end of the credit cycle and an imminent recession when that didn't really happen, and yet that view impacted valuations aggressively over the course of that year. In the same fashion, even if we do not see a rate hike as a base case scenario, we expect kind of higher for longer to be the outcome rather than hikes, market might start considering that option in its pricing as the year progresses.

And so I feel like we're all agreed that the outlook should be higher for longer and that there is debate in the market for just how high and just how long. Simply said.

It feels to me that from the conversations we think that the market is underpricing the probability of an extended disruption from tariffs or tariffs taking effect in any major way, shape, or form. It would indicate that, you know, we think about, again, just not to harp on today's data, but the University of Michigan inflation expectation data would indicate that inflation, the market feels like that should be a bit higher.

So bringing it back to what that all means for corporate credit in general, you know, you take away a duration led, tailwind potential, right? Because as rates go tighter, bonds straight up, very simple. But what does it really mean for other aspects of the market and how have you both positioned your portfolios against that backdrop?

I will really, really start on the front end, you know, really, as we think about that. So everything that we've talked about, higher for longer, where are we going? It's, you know, circling back to what Andrzej said, as you know, sometimes markets are pricing in differing views from really what our, consensus and our conviction is.

And with that, you know, for us in money markets, things that are really, really attractive right now, you know, looking at fixed rates really in the 2 to 4 month range as we're looking ahead to summer. However, within the confines of money markets, we do have the debt ceiling that, you know, we have to deal with as we're looking at options and should they not raise that and, you know, should they decide to not pay those bills around that July-August time frame, which again, is a moving target. Nobody really knows what it is based on what they're going to do for a tax collections and, other things that the Fed is doing on that.

So, as we're looking at that, although those bills may become very, very attractive, there's always that risk that they could default. And the last thing that we want to do again, circling back to money market safety, liquidity, yield, is not chase the yield for the sake of chasing the yield.

So it's you know, looking at those shorter maturity bills and discount notes, up until that July-mid-summer timeframe let's call it. And then looking at those floaters where we can pick up some duration within the portfolio and, ride out the storm. So should they stay higher for longer? We've locked in a spread on that. And if the Fed cuts those, they're pricing off of SOFR (secured overnight financing rate), which is really indicative of the front end, where repo is trading.

So if the Fed moves, that index moves higher. If the Fed should cut, that would go lower. So those will basically move lockstep with the market on that. So that's you know, really what we're thinking within our space. But with everything, you know, the data changes. You know, our opinion may change based on data that has come out. But for now, that's what we're finding is the most attractive.

Right. So the way we are approaching positioning across our portfolios is as follows. Like we de-risked our funds, quite a bit after the election.

Let me stop you there for a minute Andrzej, when you say we de-risked the funds, what was the risk positioning before you began to de-risk? Were you overweight, underweight? In which sort of sub asset classes?

Right. So, we were heading into the election with a more constructive tone across our investment grade portfolios as we anticipated the outcome of President Trump's election and the positive sentiment that will bring from an equity market perspective and that positive sentiment filtering through into fixed income valuations.

We also believed that fixed income investors will be skeptical about the risk of trade escalation. Most allocators we spoke to did not really believe in a high likelihood of an aggressive trade escalation ahead. Therefore, that positive equity sentiment driven by lower taxes, less regulation, more M&A, would really be the driver of sentiment. So we've taken advantage of that and moved from an overweight position, a quite firm overweight position across our investment grade portfolios, to one that is closer to home, closer to neutral, in terms of our positioning.

And a lot of the sale proceeds in the de-risking exercise, have been reinvested in short duration assets. So, we were looking, depending on the strategies we're talking about here at a combination of 2 or 3 year corporate bonds, around T+100 spreads, or short duration securitized options in the ABS market, where we've seen quite a lot of attractive value in securities that essentially pay down quickly and add nice carry to the portfolio, while reducing overall risk of the strategy and vulnerability to higher Treasury yields.

So, as we're positioned right now, we're kind of in this holding pattern where we want to see what that outcome on the policy front will be in the next 8 to 10 weeks. And then, we will make a determination whether to stay in this defensive posture or whether we want to add back to risk.

And I can see two scenarios here. One scenario would be on the more aggressive side, where the market realizes that inflation is moving higher because of trade escalation and Fed will not be in a position to cut rates, that can bring some volatility into our markets. This being hundreds of billions invested in our asset class over the recent year or two in anticipation of total return benefits of aggressive rate cuts ahead. If those rate cuts will not be materializing beyond what's already been done, some of that money might want to go back to cash money markets or other alternatives.

And that could prove disruptive to the asset class, especially at a time when issuance is heavy. So the call on fresh capital from investors is elevated. So in that world, you can easily see spreads widening as that risk transfer occurs. Having said that, we don't think spread widening would be too aggressive. And the key reason for that is that most investors do like yields, but also, they are pretty relaxed about the state of the US economy. So we're not talking about recessionary risk here and that caps some of the downside for the markets.

And then there's another scenario that is much more benign where we are essentially, incorrect in our assumptions about the outcome of this trade war. And we actually do have a much more benign outcome than anticipated with trade war fizzling out. In that world, where the door is open again for rate cuts by the Fed as the year progresses, we would expect a lot of money to be put to work in our asset class. Some of that could even come from money market space. Even a small reallocation, from money markets could make a huge impact on demand/supply, outlook for credit. So the way we're looking at our investment universe is we're in a holding pattern right now.

And then either we will have an opportunity to buy assets at much better entry points after a period of volatility. Or we will want to go more positive in that benign scenario if that were to happen, even though that's not really our base case assumption here. But, you know, our message is that this is not the time to exit fixed income. It's time to be light on your feet, focus on shorter duration assets, and, decide when to reengage with the asset class once that policy clarity is gained and you know what Fed's response will be.

We are absolutely confident that the amount of money both in the US and abroad, ready to be put to work at these yields, hoping for better entry points and ready to be deployed reflecting on the relative strength of the US economy, is humongous. So this is not a call to exit fixed income. It's a call to be to be close to neutral right now and then make a decision over the next ten weeks as to which of the two scenarios will play out.

At this point I might actually ask you, Tim, about your perspective on the leverage finance space and, you know, what's happening in the bond universe and the leveraged loan universe.

Sure. That actually dovetails with a question that just came in around how attractive is the senior secured loan market? Look, I think that there's always a winner and a loser when it comes to an elevated rate environment, right?

On one hand, investors get to benefit from elevated SOFR and a higher current income and more cash in their pocket. And that's fantastic. The flip side of that coin is the company that's issued the debt has to pay that, right? And that leads to a deterioration in the credit quality in certain floating rate assets, whether they were senior secured or otherwise.

Additionally, the nature of the type of capital markets activity that we've seen in leveraged loans, primarily the lower quality B3 rated loan universe, but in particular, private debt. Because they're effectively the same type of product, one is syndicated and one isn’t. There is a great deal of private equity owned leveraged buyout dividend deals, dividend recaps, sponsor to sponsor transactions. All of what in, say, 2005-2010, would have otherwise gone to the bond market, is now being underwritten, and companies are capitalized in that floating rate side. So to the extent that we see a slowdown in the economy that is more bumpy than a benign outcome where inflation steadily declines and you get your rate cut through there. But in the scenario where there's actually weaker economic data driving a need to cut rates, you could see those over-leveraged floating rate structures in a difficult position.

But that isn't really an issue right now. And what we're seeing technically in the market is that there's so much capital chasing those floating rate assets that they are now repricing existing deals via amendment, which is one of the aspects and nuances of floating rate loans that may not be the best understood or most well understood part of the market - which is why private equity firms love them - is that companies can amend their credit agreement and reprice their loan.

So there's limited convexity. And so the entry point for loans right now, about 70% of the broadly syndicated loan market is actually trading north of par. And you're playing for SOFR with the view that at some point you're likely going to have your loan repriced. On the flip side of that, you've got high yield where the technical is fantastic because there isn't as much new issue supply, again, in part because much of the sponsor activity has gone to floating rate, but also in part because they locked in really low interest rates on the bonds that they own from years gone by that are now trading at a discount. And there's no need to refinance those low coupon bonds for the same reason you wouldn't refinance your 2.5% mortgage in a 7% environment. They are not going to do that until they need to. And they've chipped away at the front end of the maturity.

So net-net, a higher for a longer environment could be a bit of a sucker's bet for floating rate assets in the sense that you're going to wake up one day and have interest rates be lower and your spread on your coupon be lower. And it's possible that your credit fundamentals have deteriorated even further, at a time where you might be better off shifting to more duration-led markets.

But what I would end with, is to say, from a credit quality perspective, the junk bond market, which continually outperforms investment grade market over the last few years, is actually safer today based on ratings, based on duration profile, based on underlying size and breadth of the market, liquidity, than it has been in quite some time.

And that's driving some of the uptick in money market flow out of money market flow into high yield, international investors re- engaging with the U.S. high yield, folks steadily making time as they maybe divest some of their private debt holdings and shift into more liquid parts of the market. But really, in addition to that, you've got investment grade buyers dipping down into some upgrade stories because of that elevated rating profile.

So it's really, really, well technically supported. And, you know, that said, it's reflected in spreads, right? So as I think about the overall opportunities that we're also fairly close to home with regard to being benchmark weight, I think we're more constructive on some of the lower quality names in sectors that have rallied well, and done well this year I should say.

And that's really the set up. And so as we get more clarity around the outlook for rates and the underlying data driving that, we look to extend a bit in duration and play some of the longer dated bonds in the portfolio. But right now you're just in a similar dynamic to the money markets. You're being paid to sit and generate coupon. And this is going to be a coupon plus type of year.

And the last thing I'll say is coupon makes up for a lot of mistakes. Right? It lowers volatility in a portfolio. We're in that area where yields are high enough now regardless of whether or not you're talking about investment grade, high yield, or money markets, where that carry that you're generating serves as a real source of income. And it does, you know, lower volatility in the overall portfolio and there's an easier argument to make to be invested in it today than there certainly was, say, in 2020.

I think that I touched on the question related to senior loans and there was one other question related to the Serta Simmons liability management exercise, or LME. That's an aspect within leverage credit where you've got creditor-on-creditor violence, where in this particular case, a group of creditors reached an agreement where they could leapfrog other creditors in the stack. That was challenged by the court, and then subsequently at the very end of last year was turned over.

The question is really what does that mean for LMEs going forward? And will that eliminate the risk of LMEs hurting nonparticipating lenders going forward? Unfortunately, the answer is absolutely not. Every single case is a case-by-case basis. The actual underlying covenants and deal structures of every deal is a little bit different. And so there's no broad based theme to take from that.

However, I would say that larger private equity shops are very keenly aware of that ruling and perhaps would be a little bit more friendly, for lack of a better term, while engaging with creditors. The other dynamic that I actually think is probably more meaningful as it relates to Alameda is that some of these private equity shops have gotten so large and they've grown their businesses into performing credit and private credit and the like, and they're trying to be good corporate citizens in that regard. Not all of them, but some of them.

Any other questions, Laurie or Andrzej, that I haven't touched on that you'd like to share before we close out?

I think you covered it all, Tim.

It's been a bit of a roller coaster ride. A lot of topics we managed to cover, so, appreciate all of the questions.

It's only the beginning of February and it's already been a long year with regard to news flow and volatility in the markets, and with that comes opportunities. As we're coming up on time, I'd like to thank everyone for joining today's webinar. Thank you very much for your questions. It certainly makes it more enjoyable to have these sort of events. And we wish you the best of luck in 2025. And very thanks very much for your time.