Fixed Income Outlook 3Q24
8-12-24
KEY TAKEAWAYS:
- Yields rose over the quarter, particularly in the long end, as inflation and economic data remained strong enough to dash market hopes of significant rate cuts this year.
- Demand for higher yields is still very competitive. Though credit spreads widened marginally during the quarter, they continue to be historically tight and we think they should be higher given macro uncertainty.
- We believe short-end rates will remain anchored to expectations of Fed cuts while long-end volatility remains as the market wrestles with the outlook for inflation.
- The current environment of higher rates makes investment grade bonds an excellent opportunity, especially within a multi-asset class strategy.
The Federal Reserve Board (the Fed) has held short-term rates steady since July of 2023. Since then, inflation concerns have been at the forefront for fixed income investors. Unchecked, inflation could move interest rates higher and push total returns into the red. Investors have been raptly watching economic data for signs pointing towards relief, but with few strong results. This has led to volatile yields at the long end of the yield curve as market makers watch and prepare for the Fed’s potential next steps.