As central banks near the end of hiking cycles, the environment is becoming increasingly supportive for fixed income.
If interest rates stay higher for longer, then bond investors earn the current high level of yield. If on the other hand, the economy enters a deep recession and central banks begin easing monetary policy, bond investors benefit from price appreciation as well as the yield. The only clearly negative environment for bond investors would be a reacceleration of inflation that leads central banks to become more hawkish, but this seems unlikely at the moment.
Nonetheless, continuing uncertainty about inflation and risk of recession means this is an environment where diversification, balance and flexibility in portfolios can be key.
In this paper, portfolio manager, Damien McCann and investment director, Flavio Carpenzano discuss opportunities across the credit spectrum in the current macro environment.
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