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2022 Fixed Income Outlook

Multiple authors
December 2021
2022-11-15
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Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
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The views expressed are those of the author at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional, institutional, or accredited investors only.

Istrat insights

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    A credit strategy designed for all seasons

    Today’s fixed income allocators face a variety of challenges: still-low interest rates, tight credit spreads, increased market fragility, and ever-present liquidity concerns. Growing investor liabilities and spending needs demand reliable fixed income diversification and a more consistent portfolio return profile.

    We believe an outcome-oriented, ”all-weather” credit (AWC) approach that encompasses public, private, and perhaps alternative credit investments may help allocators meet these challenges and navigate a wide range of economic and market environments, including unexpected cycles and bouts of volatility. In our view, such an approach to credit investing can enable investors to potentially earn attractive total returns during periods of tight spreads, while remaining positioned to take advantage of market dislocations, exogenous shocks, and shifts in the credit cycle — in short, a durable credit portfolio that is robust and resilient enough to “weather” the inevitable ups and downs of credit investing.

    Sector insights

    Fixed income: Break with tradition in 2022

    As we enter the stretch run of 2021, there are two key takeaways from our latest bond market outlook. We believe fixed income investors should think about: 1) paring back some risk exposures as 2022 takes shape; and 2) turning to select nontraditional sectors for higher total return potential.

    Rate insights

    Fixed income 2022: Ushering in a new rate paradigm

    As we enter the stretch run of 2021, we are witnessing a seismic and rather abrupt shift in the global monetary policy framework. Notably, the big developed market (DM) central banks are gradually moving away from traditional forward guidance toward emphasizing greater policy flexibility and better risk management in response to economic and market developments. Based on recent central bank decisions, we think market participants will be less inclined to see monetary policymakers as reliable forecasters or drivers of economies and business cycles.

    DM central banks, especially the US Federal Reserve (Fed), now find themselves in the unenviable position of grappling with stubborn supply-side inflation and fundamentally transformed job markets. Low unemployment rates, which are virtually back to pre-pandemic levels in major economies, may signal that the active labor pool has been structurally diminished by some combination of early retirements, reduced immigration, labor support schemes, and/or people leaving the workforce altogether during COVID-19. Global policymakers are still trying to determine how many jobs are just “missing” and likely to return eventually, versus how many are probably never coming back (Figure 1).

    Figure 1
    Employment-rates-fig1

    ESG Risk insights

    Assessing ESG risks in sovereign bonds: The time is now

    The challenges of the past 18 months or so have highlighted the potential for environmental, social, and governance (ESG) factors to become even more relevant to asset management and have underscored the ever-increasing importance of stewardship by fiduciaries and active investors alike. ESG has quickly become one of the defining investment criteria of this decade — a trend we have little doubt will endure in 2022 and beyond.

    We have long believed that mounting sovereign debt burdens pose a risk to investors, even in developed markets. At the very least, investors are not being adequately compensated for investing in the most heavily indebted countries. Given the sharp rise in government debt levels in response to the global COVID-19 crisis, it’s an opportune time for sovereign bond investors to refresh their investment frameworks, the particular metrics to be applied, and their country-selection methodologies, including the ESG factors underlying investment decision making.

    Authored by
    reganti-amar-316x316
    Amar Reganti
    Fixed Income Strategist
    Boston
    lafond cara
    Cara Lafond, CFA
    Multi-Asset Strategist
    Boston
    perret-christopher-648x648
    Christopher Perret, CFA, CAIA
    Investment Director
    Boston
    bayerl-andrew-new
    Andrew Bayerl, CFA
    Investment Director
    Boston
    burn-robert-316x316
    Rob Burn, CFA
    Fixed Income Portfolio Manager
    Boston
    Campe Goodman
    Campe Goodman, CFA
    Fixed Income Portfolio Manager
    Boston
    naidu-jitu
    Jitu Naidu
    Investment Communications Manager
    Boston
    pelata-marion
    Marion Pelata
    Fixed Income Portfolio Manager
    London
    harvey-martin
    Martin Harvey, CFA
    Fixed Income Portfolio Manager
    London