Fixed Income Outlook 2Q24
4-24-24
KEY TAKEAWAYS:
- The recent string of hotter than expected inflation readings led yields higher, cast doubt on the hoped for soft landing, and may mean that higher rates persist this year.
- Credit spreads fell during the quarter back near historic lows as investors continue to seek out higher yielding securities. We believe markets are underappreciating risks and spreads should be higher.
- Overall, investment grade bonds remain an excellent opportunity for investors given higher yields and the potential for future interest rate cuts.
- We remain committed to our long-term strategy of purchasing investment grade, liquid bonds.
The first quarter began with high expectations for the Federal Reserve Board (the Fed) to cut interest rates six to seven times over the following 12 months. Since then, U.S. economic activity has remained resilient and the steady march towards lower inflation has become uneven. By the end of the quarter, the number of forecasted cuts fell to three and have been pushed to the second half of the calendar year. In response, the U.S. Treasury yield curve shifted upwards as inflation may be more stubborn than the Fed initially forecast.