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After a challenging start to the year, investors look to position their fixed-income portfolios based on interest rates and the economy.
- We think future Fed rate hikes are currently well reflected in Treasury yields. The Fed’s policies will be effective in curtailing inflation but could slow growth.
- Inflation and growth expectations for the economy will most likely continue to shift. It’s important for fixed-income investors to remain flexible and calibrate exposures to interest rates and credit risk in their portfolios.
Three paths to find opportunity in fixed income: Choose the scenario you find most likely
I think the Fed will have to play “catch up” and raise rates faster |
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Reduce interest rate risk (i.e.,
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Bonds with lower duration,including:
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I think the Fedwill get it “just right” |
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Overweight credit risk versus interest rate risk |
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Credit-centric asset classes, including:■ Corporate bonds |
I think the Fed will hike the economy into recession |
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Look for protection from credit-related volatility |
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High-quality, duration-centric strategies, including:■ Core |