Fixed-Income Sector Views

Fourth Quarter 2022

While the path to get us here has been painful, investable yields have the potential to meet the return objectives of pension plans, insurance companies, or other investors that may have been sitting on the sidelines—or taking undue risk within fixed income in a reach for yield. As always, we have to be mindful with credit selection and maintain a healthy amount of defensive skepticism in our allocations, particularly with the Federal Reserve (Fed) still hiking and a recession looming (if it isn’t already here), but our risk appetite is relatively strong right now. Our conviction is strengthened by the historically wide spreads and low dollar prices available in the market. The message from our sector teams is that it is now possible for investors to generate the income they require without taking excessive credit or duration risk.

Sector-Specific Outlooks In This Report

Rates: Duration Opportunities as Rates Rise

Investment-Grade Corporate Bonds: Focus on Long Duration at Attractive Valuations

High-Yield Corporate Bonds: Priced for a Net Downgrade and Default Cycle

Bank Loans: The Loan Dilemma of Higher Interest Rates

Municipal Bonds: Differing Values in Taxable vs Tax Exempt Munis

ABS-CLOs: Relative Outperformance Amid Volatility

Non-Agency RMBS: Select Opportunities in RMBS Despite Cooling Housing Market

CMBS: Balancing Negatives and Positives

Agency MBS: Historically Wide Spreads Signal Long Term Value

Commercial Real Estate: Calling an End to the Great Work-From-Home Experiment