Bonds are back
Fixed income has historically played two roles in portfolios: providing income and offering diversification against riskier assets if the growth outlook deteriorates. With the ultra-low interest rate environment at an end and valuations appearing attractive for the first time in years, the role of bonds has been restored.
1.
Fixed income has experienced a dramatic repricing and valuations now look attractive. Real government and corporate bond yields are at multi-decade highs, giving investors the opportunity to find the income they need.
2.
Inflation should continue to moderate in 2023 as the impulse from food and energy prices fades and the global economy weakens. As a result, we think central banks should be able to pause their rate hiking cycles.
3.
An environment of lower inflation and less aggressive central bank action should allow bonds to serve as a diversifier against recession risks by rising in price if equity prices come under pressure.
Fixed income insights
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