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Fixed Income
Thinking beyond the landing
Andrew A. Cormack
Fixed Income Portfolio Manager
Keiyo Hanamura
Investment Director

The market narrative about how the current economic cycle might end has turned full circle: from certain recession to soft landing – and now back to recession.


In early 2022, as one of the fastest hiking cycles began, the market was convinced a recession was inevitable; it was just a question of its severity. By 2023, the market was bracing for the lagged impact of the rate hikes. As time went on, however, the economy remained resilient, even managing to come through a mini banking crisis relatively unscathed. With the labour market remaining strong and the consumer still spending, the narrative shifted toward an expectation the US Federal Reserve would be able to achieve a soft landing. This remained the consensus view through the first half of 2024, but weaker than expected employment data in August moved expectations back toward recession.


Although our base case remains for a soft landing, it is important to keep an open mind given the extraordinary events of the past few years. Different outcomes favour different areas of the bond market: a hard landing is likely to favour longer duration/higher quality assets, whereas shorter duration credit-oriented strategies should benefit from a soft landing. However, if inflation were to significantly reaccelerate, cash would be king.


In this paper, we develop a framework to help investors navigate this uncertainty and think about the potential near and longer-term macroeconomic scenarios. We find a two-layered approach, combining flexibility with the diversification benefits of a core bond portfolio, could help investors meet any challenges that may lie ahead.


A framework to navigate the landing


A framework to navigate the landing

For illustrative purposes only.
Source: Capital Group. LC: Local currency. HC: Hard currency


Andrew Cormack is a fixed income portfolio manager at Capital Group. He has 19 years of investment industry experience and has been with Capital Group for five years. Prior to joining Capital, Andrew worked as a portfolio manager at Western Asset Management. He holds a first-class honours degree in actuarial science from the London School of Economics and Political Science. He also holds the Investment Management Certificate. Andrew is based in London.

Keiyo Hanamura is an investment director at Capital Group. He has 16 years of investment industry experience and has been with Capital Group for six years. Prior to joining Capital, Keiyo worked as a fixed income product strategist at BlackRock. He holds a master's degree in international affairs from the University of California, San Diego and a bachelor's degree in international studies from the University of Iowa. Keiyo is based in Tokyo.


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