Capital Advisors writes "Central Bank Tightening, Tax Reform and Event Risk: Three Trends to Watch in 2018." They comment, "At the start of each year, we typically name three broad market trends or events that could potentially have the greatest impact on the short-term debt market. For 2018, we think central bank tightening, tax reform and event risk will have the most impact on short-term debt markets. We are generally sanguine about the interest rate and credit spread outlook. What is less clear is how investors will manage a market reversal. We think the demand for institutional cash portfolios to "self-insure" against liquidity events has increased. Treasury professionals should focus on risk diversification and liquidity stratification.... 2017 turned out to be an unexpectedly blissful year by some standards. A political novice occupying the White House did not lead to the financial market volatility many had predicted, in spite of his unconventional communication style. Britain will leave the European Union, but no other country followed suit. The debt ceiling came and went… and came again, but Treasury issuances were well received. Headline news was dotted with reports of partisan politics, slowing growth in China, terrorism, asset bubbles and rising corporate leverage. Nevertheless, risk assets, interest rates and market liquidity all seem to have held up well." The piece adds, "The closely-watched repatriation tax law will subject foreign profits accumulated from 1986 to 2017 to a one-time tax of 15.5% for cash and liquid assets and 8.0% for illiquid assets, higher than the initial Senate plan of 10% and 5%, respectively. Companies can either make payments immediately or defer them over a multi-year period. On the tax front, the estimated $2.6 trillion total offshore profits may translate into tax bills of $208-390 billion. How companies pay these bills will influence their liquidity management and financing decisions, and by extension, debt supply and demand dynamics across global markets. While the full impact of cash reshuffling on a grand scale will take years to materialize, we have already observed some cash investors putting their investment decisions on hold pending strategic review."

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