Fixed Income - 2018 Preview: The Remarkable Transformation

What a difference a year can make. Financial markets are of course cyclical - some would say fickle - and can careen between optimism and pessimism very quickly. A year ago, we chose "A Black Swan Lake" for the title of our 2017 preview in anticipation of heavy turbulence and with a sense of foreboding after the shocking results of the Brexit referendum and US presidential election. The black swans of 2016 made such an impression on investors that a higher probability of tail-risk events was priced in for 2017. But the pernicious birds were nowhere to be found in 2017, and in fact the year turned out quite favorably for financial markets, particularly EMs. Russia, meanwhile, has over the past two years engineered what could be called a remarkable transformation - from the disarray of early 2015 to having become seen as a predictable and almost "safe" risk.