Global Fixed Income Outlook

Explore Our investment Outlook

Inflation, Rising Rates, Growth Uncertainty Prompt Defensive Posture

We believe the fixed-income market is in transition. Concerns that persistently high inflation would cause the Fed and other central banks to aggressively tighten monetary policy dominated the first half of 2022. This led to increased interest rate volatility and rising yields.

With the Fed and other major central banks now raising rates, we believe market anxiety is shifting. We expect worries about higher rates triggering substantially slower growth and a potential recession to take center stage.

Growth concerns likely will keep volatility elevated. Credit spreads may bear the brunt of the volatility, as deteriorating global economic prospects (and potentially stagflation) weigh on credit fundamentals.

Given the likelihood of prolonged high inflation, rising interest rates, increased volatility and an uncertain global growth trajectory, we believe maintaining a more defensive approach is prudent. Here’s how our sector teams are responding:

U.S. Government

We believe Treasury inflation-protected securities (TIPS) continue to offer value in today’s high-inflation backdrop. Although the Fed is now taking steps to slow inflation, we believe policymakers waited too long to act. Current inflation and longer-term inflation expectations remain elevated, highlighting the potential benefits of securities that protect against soaring prices.

U.S. Securitized

Until volatility subsides, we are tactically trading our credit exposures to move higher in the capital structure and shorter in spread duration. Meanwhile, we believe valuations in the agency mortgage-backed securities (MBS) market have become appealing. We expect to increase exposure to agency MBS in coming months based on their attractive yield and liquidity profiles.

U.S. Corporate

Amid heightened volatility and uncertainty, we favor a slightly more defensive posture. Among investment-grade and high-yield corporates, we favor securities with the potential for credit rating upgrades. We expect rising inflation and slowing investor demand to eventually affect corporate fundamentals. This may lead us to attractive buying opportunities in the corporate sector.


While our portfolios have been positioned with less interest rate sensitivity than our peers, we are taking a measured approach to bringing durations closer to neutral. As always, we are looking for opportunities to increase each portfolio’s yield profile through sector allocation and security selection. We continue to favor higher-rated hospitals, gas prepayment municipal bonds, and essential service revenue bonds in this environment. Security selection within development districts and retirement communities remains a focus within high-yield allocations.

Non-U.S. Developed Markets

We are modestly overweight in U.K. government securities. In our view, the market expects aggressive tightening from the Bank of England, significantly above our estimation for the neutral rate.

In Europe, we are maintaining a neutral duration stance for now, with an overweight in semi-core countries, including Finland and Ireland. We expect the European Central Bank (ECB) to conclude its asset purchase program soon, setting the stage for the ECB’s first rate hike in more than 10 years. While we expect continued growth in the region this year, we believe the pace will be notably slower. We are carefully monitoring the Russia/Ukraine conflict and its impact on European energy costs and overall inflation.

Emerging Markets

We continue to seek relative value trades in currency markets, preferring commodity-exporting countries over commodity importers. We also favor countries where central banks are well into rate-hike cycles and, as such, offer higher real rates. Elsewhere, we prefer maintaining an underweight position in EM local bonds. Food and energy prices represent a significant portion of inflation in emerging markets. So, if commodity prices remain high, we believe an underweight position is prudent, even in a slowing global growth environment. We favor countries with very steep yield curves, such as Indonesia, South Africa and Peru, where risk appears fairly priced and central banks have been proactive.

Q3 2022 Investment Outlook Resources

References to specific securities are for illustrative purposes only, and are not intended as recommendations to purchase or sell securities. Opinions and estimates offered constitute our judgment and, along with other portfolio data, are subject to change without notice.

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