The past year has been difficult for fixed income investors, with the sharp rise in bond yields leading to a fall in bond prices. After an extended period of low interest rates, bond prices corrected sharply throughout the year as the Fed raised rates and increased its forward projections for those rates. The U.S. Treasury yield curve also inverted, with short-term rates moving above long-term rates. Historically, an inverted yield curve has been a predictor of economic recessions and is therefore worthy of our attention. There is a silver lining to the market correction in bonds; however, for the first time in over a decade, yields on high quality bonds exceed dividend yields on high quality stocks. Because short-term rates have risen the fastest, investors do not need to own bonds with high interest rate sensitivity (also known as duration) in order to earn attractive yields. With much higher yields, high-quality fixed income can now provide a more substantial buffer in portfolios during a stock market correction or an economic downturn.
Fixed Income Q4 2022
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Economic & Market Commentary
Fixed Income Q1 2023
With the rapid increase in short-term interest rates, we are finding better opportunities to earn income from the fixed income component of portfolios. In fact, the yield on short maturity bonds currently exceeds that on intermediate and long maturity bonds. This phenomenon exists because the yield curve is inverted, as investors predict short rates will fall in the coming years as the Fed eventually shifts from a tightening to an easing policy.
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Economic & Market Commentary
Equities Q1 2023
It was a tumultuous quarter for global equity markets, punctuated by elevated inflation, an increasingly high stakes war in Ukraine, and the sudden and shocking threat of a good, old fashioned banking crisis. And to think, we still have three quarters of the year left!
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