Views From The Experts

Many investors fear the economy may shift into recession, as all good things must come to an end. We don’t share their near-term pessimism. However, ten years into a US expansion, we do see rising market volatility on the global horizon. We think a cautious approach to inflation and the aging credit cycle can still be profitable for long-term investing. Stepping back to review the big picture in the third quarter, we see the following:

Top Down Views

• Positive US economic momentum should continue for another 18–24 months. We believe fears about inflation and trade tensions are overblown (for now) but require close monitoring.

• Global growth remains buoyed by consumer spending, though China and the eurozone have been decelerating slightly. We expect rising market volatility as more banks end quantitative easing.
Bottom Up Views

• Some investment-grade bonds are riskier than their ratings imply, while high yield enjoys positive technical tailwinds. Bottom-up credit analysis is key to our investment process at this stage in the cycle.

• A large number of bank loan agreements now favor borrowers over lenders. We explain the steps we’re taking to protect investors from potentially damaging changes to bank loan interest rates.

Franklin Templeton Thinks: Fixed Income Markets highlights the team’s ongoing analysis of global economic trends, market cycles and bottom up sector insights. Each quarterly issue spotlights the team’s thinking on different macro forces, and particular sector views that drive our investment process. For this issue, visit

All investments involve risks, including possible loss of principal. Because market and economic conditions are subject to rapid change, the analysis and opinions provided are valid only as of September 7, 2018, and may change without notice.
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