Fixed Income Market Commentary: Making Sense of the Current Fixed Income Landscape

The fixed income market has been through a wild ride lately. The Federal Reserve's decision to raise interest rates has caused a significant shift in the market, making it challenging for investors to navigate.

The yield curve has flattened, with the 10-year Treasury yield dropping below the 2-year yield. This is a sign of a potential recession, as it indicates that investors are increasingly concerned about the future of the economy.

Investors are also grappling with the impact of quantitative tightening, which has reduced the Fed's balance sheet and increased the supply of bonds. The result is a decrease in bond prices and an increase in yields.

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In today's changing interest rate environment, it's essential to reassess your cash management and investing strategies to support your long-term goals.

Elevated interest rates can significantly impact your cash and investments, making it crucial to consider fresh approaches to managing them.

A fresh look at managing your cash and investments in today's changing interest rate environment can help support your pursuit of the goals that matter most to you.

Interest rates are elevated, and this shift can affect the returns on your savings and investments, making it a good time to reevaluate your strategy.

Managing your cash and investments in today's interest rate environment requires a proactive approach to ensure your goals are still within reach.

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Bond yields tend to rise if the economy grows rapidly and inflation is rising, often reflecting the Federal Reserve's actions on short-term interest rates.

The Federal Reserve raised rates in early 2022 as inflation in the U.S. began surging in 2021, causing yields across the bond market to rise.

A strong U.S. economy can lead to rising long-term bond yields, as seen in mid-2024 when yields began to decline again before moving higher after the Fed's initial rate cut.

The Fed's decision to cut rates in September 2024 was expected to be a series of rate cuts, which can impact bond yields.

U.S. 10-year Treasury yields rose over 20 basis points to near 4.40% as the Fed could signal a pause in its cuts, indicating a potential shift in the bond market.

Even if the Fed cuts rates further in 2025, we see rates ultimately settling higher than pre-pandemic levels, suggesting a continued upward trend in bond yields.

Core CPI for November cleared the way for a Federal Reserve rate cut, but showed sticky services inflation, which can keep bond yields elevated.

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Investors may want to modestly underweight their fixed income position within portfolios that mix stocks, bonds and real assets, as there are more relative opportunities in equities.

Buying bonds after interest rates have risen can be beneficial, as it may generate a larger income stream and be subject to less interest rate risk.

Even when interest rates are low, bonds can still be suitable for a well-diversified portfolio.

To position fixed income investments, consider extending durations slightly longer and including high-yield municipal bonds for investors in high tax brackets.

Non-taxable investors may benefit from diversifying into non-government agency issued residential mortgage-backed securities.

Insurance-linked securities can offer a way to capture differentiated cash flow with low correlation to other portfolio factors for certain eligible investors.

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U.S. stocks have paused near all-time highs, with the S&P 500 up nearly 30% this year. The U.S. core CPI for November showed sticky services inflation.

The Federal Reserve rate cut is expected this week, but U.S. 10-year Treasury yields rose more than 20 basis points to near 4.40%. This is likely due to the Fed's potential pause in rate cuts.

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Wage growth is holding at levels that don't suggest inflation is set to cool back near the Fed's 2% target. Past performance is not a reliable indicator of current or future results, so it's essential to stay informed about current market trends.

Several central banks meet this week, with the U.S. core PCE out later in the week showing whether services inflation remains sticky. The Bank of England policy decision is also worth keeping an eye on.

The corporate bond market has seen significant fluctuations, with each month's performance recap offering valuable insights. Click below for the latest edition of the corporate bond market's performance.

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The Federal Reserve has kicked off an easing cycle, which is a positive sign for credit. This decision was made on July 23, 2024.

The Fed's decision to ease is a result of their fight against inflation finally starting to show progress. This shift in monetary policy is expected to have a positive impact on the fixed income market.

The easing cycle is a signal that the Fed is becoming more accommodative, which can lead to lower interest rates. This, in turn, can make it easier for investors to access credit.

The Fed's decision to ease is a significant development that can have far-reaching implications for the fixed income market.

The stock market has been impacted by changing interest rates, with the S&P 500 up nearly 30% this year.

U.S. stocks paused near all-time highs last week, but the Federal Reserve's rate cut this week may have a ripple effect across capital markets.

U.S. 10-year Treasury yields rose more than 20 basis points to near 4.40%, making borrowing more expensive.

The Fed's expected policy rate cut this week is significant, and U.S. core PCE, the Fed's preferred inflation measure, will show whether services inflation remains sticky.

Wage growth is holding at levels that don't suggest inflation is set to cool back near the Fed's 2% target.

Even if the Fed cuts rates further in 2025, we see rates ultimately settling higher than pre-pandemic levels.

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Managing your fixed income portfolio in today's changing interest rate environment requires a fresh look at your strategies.

Elevated interest rates can have a significant impact on your cash and investments, making it essential to reassess your approach to support your long-term goals.

A changing interest rate environment can lead to shifts in market dynamics, making it crucial to stay informed and adapt your strategies accordingly.

Investing strategies should be tailored to your individual needs and goals, taking into account the current interest rate environment and its potential impact on your portfolio.

In today's elevated interest rate environment, cash management and investing strategies can help support your pursuit of the goals that matter most to you.

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The municipal bond market can be unpredictable, with an imbalance in supply and demand leading to valuation uncertainties and greater volatility.

This can result in less liquidity, widening credit spreads, and a lack of price transparency in the market.

Investments in income securities may be affected by changes in the creditworthiness of the issuer and are subject to the risk of nonpayment of principal and interest.

The value of income securities may also decline due to real or perceived concerns about the issuer's ability to make principal and interest payments.

As interest rates rise, the value of certain income investments is likely to decline, and longer-term bonds are typically more sensitive to interest-rate changes than shorter-term bonds.

This means that debt securities with longer maturities tend to be more sensitive to interest rate movements than those with shorter maturities.

Company defaults can impact the level of returns generated by corporate debt securities, and an unexpected default can reduce income and the capital value of a corporate debt security.

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The Week Ahead is looking like a busy one, with several key events scheduled to impact the fixed income market.

The Federal Reserve will be making a policy decision, which could have significant implications for interest rates.

Global flash PMIs will be released, giving us a snapshot of the current state of the economy.

In the US, the PCE will be reported, a key inflation metric that the Fed closely monitors.

The Bank of Japan will also be making a policy decision, which could influence the Japanese yen's value.

The UK's CPI will be released, providing insight into inflationary pressures in the UK.

Japan's CPI will also be reported, another important inflation metric for the region.

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The fixed income market has been a wild ride lately, with yields fluctuating wildly.

In the past year, the 10-year Treasury yield has dropped from 1.9% to 1.4%, a decline of 26.3%.

Investors are increasingly turning to shorter-term bonds to avoid interest rate risk.

The 2-year Treasury yield has risen from 1.2% to 1.5% over the same period, a gain of 25%.

The shift towards shorter-term bonds is a sign of growing caution among investors.

Some investors are also exploring alternative fixed income investments, such as high-yield bonds and dividend-paying stocks.

These alternative investments often come with higher yields, but also higher credit risk.

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