PGIM Fixed Income 1Q 2021 OutlookPGIMFixedIncome1Q2021Outlook

At a Glance - PGIM Fixed Income Sector Views as of January 2021

Sector	Outlook	Rationale
Developed Market Rates	Constructive	Some expectations for growth and inflation may be overly optimistic, prompting curve flattening in the U.S. and Australia. European and Japanese rates appear set to remain rangebound near recent levels amid more tepid recovery expectations and significant QE purchases.
Agency MBS	Opportunistic	Continued preference for spread sectors over MBS. However, the hedge-adjusted carry opportunities in production coupons relative to intermediate U.S. Treasuries remain relatively attractive, but not as much as in late 2020. Still appropriate to own back-month TBAs vs. intermediate Treasuries and to stay focused on specified pools away from Fed purchases.
Securitized Credit	Positive	Positive on high-quality spreads as near-zero policy rates and ongoing Fed purchases support a spread tightening environment. Wary of mezzanine risk for collateralized loan obligations and conduit commercial-backed mortgage securities, but find value in subordinates of select single-asset single borrower CMBS, asset-backed securities, and select non-agency credit risk transfer issues in the residential mortgage-backed securities market.
IG Corporate Debt	Positive	Positive in light of central bank support and the prospects for an economic recovery. Favor U.S. money center banks as well as select BBB-rated issues, cyclical credits, and fallen angels.
Global Leveraged Finance	Constructive	Constructive over the medium and long term. Spreads remain attractive and will drive strong returns for investors with longer term time horizons. Over the near term, the market will likely remain volatile. We believe actively managed credit selection will be a differentiating factor between managers.
Emerging Market Debt	Optimistic	Prospects for EMD performance are encouraging given the supportive backdrop, attractive valuations, and the global search for yield. Favor hard currency spreads, followed by FX amid a weak dollar theme, and select local bond markets that are poised to benefit from curve flattening. Significant headwinds in early 2021 may be avoided.
Municipal Bonds	Constructive	Constructive in the near-term based on supportive technicals.

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Fixed income investments are subject to interest rate risk, and their value will decline as interest rates rise. Commercial mortgage-backed securities (CMBS) are a type of mortgage-backed security backed by commercial mortgages rather than residential mortgages. They are composed of a variety of loans, each of which represents different property sizes and locations. These loans are pooled and are broken into tranches of risk that are sold to investors. High yield bonds, known as junk bonds, are subject to a high level of credit and market risk. International bonds are bonds issued by foreign corporations or foreign government agencies. Emerging market bonds are local currency bonds issued by emerging market governments. Emerging market countries may have unstable governments and/or economies that are subject to sudden changes. These changes may be magnified by the countries’ emergent financial markets, resulting in significant volatility to investments in these countries. Investment-grade corporate bonds are bonds with a credit rating of AAA to BBB as rated by Standard & Poor’s, or Aaa to Baa as rated by Moody’s. Mortgages refer to mortgage-backed securities (MBS), which are composed of a variety of residential mortgage loans, each of which represents different property sizes and locations. These loans are pooled and are broken into tranches of risk that are sold to investors. Collateralized loan obligations (CLOs) are securities backed by a pool of debt, often low-rated corporate loans. Municipal bonds are tax-exempt bonds with a maturity of at least one year, including state and local general obligation, revenue, insured, and pre-refunded bonds. Unlike other investment vehicles, U.S. government securities and U.S. Treasury bills are backed by the full faith and credit of the U.S. government, are less volatile than equity investments, and provide a guaranteed return of principal at maturity. Asset allocation and diversification do not assure a profit or protect against loss in declining markets. Past performance is no guarantee of future results.

The views expressed herein are those of PGIM Fixed Income investment professionals at the time the comments were made and may not be reflective of their current opinions and are subject to change without notice. Neither the information contained herein nor any opinion expressed shall be construed to constitute investment advice or an offer to sell or a solicitation to buy any securities mentioned herein. Neither Prudential Financial, its affiliates, nor their licensed sales professionals render tax or legal advice. Clients should consult with their attorney, accountant, and/or tax professional for advice concerning their particular situation. Certain information in this commentary has been obtained from sources believed to be reliable as of the date presented; however, we cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. The information contained herein is current as of the date of issuance (or such earlier date as referenced herein) and is subject to change without notice. The manager has no obligation to update any or all such information; nor do we make any express or implied warranties or representations as to the completeness or accuracy.

This material is being provided for informational or educational purposes only and does not take into account the investment objectives or financial situation of any client or prospective clients. The information is not intended as investment advice and is not a recommendation. Clients seeking information regarding their particular investment needs should contact their financial professional.

PGIM Fixed Income is a unit of PGIM, Inc. (PGIM), a registered investment advisor and Prudential Financial company. © 2021 Prudential Financial, Inc. and its related entities. PGIM and the PGIM logo are service marks of Prudential Financial, Inc. and its related entities, registered in many jurisdictions worldwide.

1044328-00001-00        Ed:01/2020