We do not expect widespread contagion across China’s real estate or banking sectors despite the challenging outlook.

While the market should remain relatively stable this year, we are monitoring three themes that could have a significant impact over the longer term.

We believe the Fed’s mortgage purchase program is helping to bolster economic activity, and accomplishing more than Treasury purchases alone.

The Fed has moved aggressively to stabilize core assets, including mortgages. Yet several market indicators are still concerning.

We believe Federal Reserve and U.S. Treasury efforts to improve overall market liquidity will have a positive effect on U.S. mortgage pricing, bringing opportunity to investors.

Even as the probability of a recession in the near-term remains low, we believe investors should look to sectors that are likely to be resilient in periods of higher volatility.

In today’s environment, as traditional credit market betas become less attractive, investors should consider tactical allocations to non-core sectors such as bank loans and higher-quality securitized credit.