Still uncertain are the impacts that the Tax Cuts and Jobs Act of 2017 will have on the fixed-income market. Though fiscal stimulus late in a bull market should be inflationary, as of the end of the first quarter, inflation was in line with the expectations of central bankers.

Thus far, tax reforms have not produced the significant uptick in interest rates that many expected, nor has it produced a surprise upside in inflation. All told, Guggenheim expects tax cuts to add up to 0.5% to the U.S.’s 2018 GDP and core inflation to hew close to the Fed’s target of 2%.

Also of concern is the decision by Congress to add $1.5 trillion to the national debt to fund tax cuts and fiscal spending late in a bull market. “We’ve decided to finance tax cuts, and it’s going to be worse off for our debt burden over the long run,” says Sherman. “There are structural reasons that interest rates should go up because of the extra supply of securities that the U.S. will have to put into the market.”

Rieder believes that central banks will be able to navigate the difficulties of unwinding their balance sheets and work to keep market conditions calm.

With the gradual rise in interest rates, default risk is already climbing, as the cost to protect securities from default has gradually climbed over the past few years. Asset managers like BlackRock, PIMCO and DoubleLine have already recommended that investors start paring back holdings in investment-grade and high-yield corporate credits.

Since the end of the global financial crisis, during the period of the Fed’s zero-interest-rate policy and quantitative easing, long-only credit investors fared well, despite some intermittent periods of distress. However, many managers expect conditions to worsen in the future as a result of inflation.

“Investors have been investing under the same strategy for so long because it’s been low rates and low volatility,” says Kathleen Gaffney, vice president and director of diversified fixed income at Eaton Vance. “We’ve benefitted from the economic recovery with very low inflation. The idea of inflation coming back is not on most investors’ minds.”

Gaffney manages the Eaton Vance Multisector Income Fund (EVBAX), which had $460 million in assets as of May 4 and had offered investors five-year annualized returns of 3.77%. It carries a 97 basis point expense ratio.

Gaffney’s long-only fund is managed for total return and low volatility using a credit-oriented, bottom-up strategy. The fund is currently focused on currency positions and is holding a lot of cash, she says, but it has been able to use 25% to 33% of its credit exposure in emerging market debt to generate excess returns of 250 to 400 basis points above the Agg.

Generally, there seems to be some consensus among managers and analysts that inflation will rise slowly in the near term, allowing the Fed to continue its policy of gradual, well-telegraphed rate increases.