U.S. stock and bond markets are fairly valued, if not somewhat overvalued given the current macroeconomic backdrop, says Payden & Rygel.
Investors should expect low returns over the long-term as valuations for most risk assets are stretched and yields remain low.
Stocks have not been the only asset class to bounce back since mid-February, high yield bonds have also made a rapid recovery.
The Dow Jones Industrial Average may be back above 18,000, but the bell weather equity index does not reflect the true problems underlying the economy.
The Barclay's U.S. Aggregate bond index was up three percent in the first quarter after a flat 2015.
Municipal bonds were one of the top performing asset classes in 2015, registering a more than a 3% total return.
Municipal bonds had a solid year in 2015 and judging by the group's fundamentals the coming year should be similarly positive.
Many of the same macro factors that supported the muni market in 2015 like modest inflation, manageable supply and consistent demand will continue throughout 2016.
Things could get far worse before they get better for high yield bond investors, said Collin Martin, fixed income director at the Schwab Center for Financial Research.
Talk about being put on hold, the Federal Reserve might not make a move on interest rates until September unless the economy picks up.