2023 Midyear Outlook: Fixed Income May Offer Compelling Options

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Throughout 2022, high levels of volatility across all major asset classes created a difficult environment. Fixed income investors were hit especially hard, as rising yields—brought on by surging inflation—weighed heavily on bond prices. Although not ideal, this helped set the stage for a more positive start to 2023.

In the first half of the year, virtually all major fixed income sectors experienced positive returns. Those returns were supported, in part, by falling long-term yields. Bond prices (which move inversely to yield) rallied during periods of uncertainty—most notably in March and April amid concerns about the health of the banking industry. Historically, bond prices have tended to rise in tandem with market risk, as investors seek the relative safety of fixed income. So, the fact that bonds started acting like bonds again was encouraging.

The outlook for fixed income investors in the second half of the year is still positive. While we have seen yields come down a bit, they are still attractive historically. And while there are some compelling options across several sectors, it’s important to remember that not all fixed income behaves the same way.

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