From Low Ranger to High Plains Drifter
With the vast majority of rate hikes behind us, market volatility is set to fall. A tailwind from the reemergence of the “search for yield” is likely to follow.
Rather than seeing the recent market and geopolitical volatility as the effects from the latest in a series of idiosyncratic developments, we view them as the contours of a new paradigm that continues to shape our economic and bond market outlooks. Our Q4 Market Outlook begins with an assessment of the bond market and macroeconomic landscape, followed by sector overviews in which our portfolio managers subsequently highlight the associated risks and opportunities within their respective sectors.
Learn more about the three key themes that shape our quarterly fixed income outlook:
Economic shocks, market volatility, and geopolitical tensions make for an unpalatable investing stew. Rather than assessing each of these attributes in isolation, we view them as the contours of the new global paradigm referenced in our economic and market outlooks. As investors monitor the emergent risks, they likely need to reacquaint themselves with the opportunities in the new paradigm.
Driven by a level of value absent from the fixed income markets for decades, the traditional characteristics of fixed income investing—roll, carry, and income—are moving to the fore. These key aspects can generate performance that meets or exceeds investors’ objectives. Furthermore, should economies hit a surprise air pocket, there’s now ample room for yields to decline and provide an additional boost to returns.
The theme of broadening dispersion—and the attendant expansion in the investment opportunity sets—extends across economies and fixed income sectors. Indeed, we see the U.S. economy outperforming other major developed markets, while the emerging markets are experiencing greater dispersion on multiple levels. Credit sectors will likely experience further differentiation amidst the range of idiosyncratic developments and economic trajectories.