![]() With short-term Treasuries and money markets offering yields between 4% and 5%, many investors may believe there is little point in taking off those cash seat belts. Still, our portfolios are positioned more defensively since not all segments of the market are priced for a slowdown. We don’t see economic excesses that could spark a deep and prolonged downturn. However, the current flight path points toward more of a bumpy landing: a shallow recession next year. Market commentators have obsessed over whether we will have a hard, soft, or extended “landing”-that point when the economy cools and rates eventually drop. When the end of rate hikes comes clearly into view, investors will focus more on the trajectory of the economy. We may hit some turbulence yet, but with respect to the U.S., we believe the Fed has moved on from playing catch-up with its policy actions to a period of fine-tuning, which likely translates into one or two more rate hikes this year before holding steady well into 2024. There are those post-takeoff moments in an airplane-after the pressure against your chest has eased and your ears have stopped popping-when you gaze out the window at the clouds below.įor most of the global bond market, that’s roughly where we are: near cruising altitude. For now, higher yields mean investors are getting paid to wait. When the Fed is done hiking, quality and duration should prove their mettle. In municipals, the longer end of the curve offers better value. We believe 10-year Treasury yields near 4% are at an attractive level to add duration. Our strategy favors higher-quality securities that are less economically sensitive. Bonds have traditionally done well after the Federal Reserve stops raising the fed funds rate. In the end, we believe a shallow recession will occur. ![]() ![]() The odds of a recession rise as rates go higher themselves. Such results re-affirm our “bonds are back” view as higher yields can generate positive returns even in the face of continued rate hikes and periods of elevated volatility. Aggregate Float-Adjusted Bond Index has returned +2.12% through June 30, 2023. Despite yields rising year-to-date, the U.S. Higher-than-desired inflation and a stronger-for-longer global economy in the second quarter helped yields to rise and credit spreads to fall. It offers a sector-by-sector analysis and a summary of how those views affect the Vanguard active bond funds. ![]() Vanguard Active Fixed Income perspectives is our quarterly in-depth commentary. ![]()
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |