The combination of higher yields and wider spreads—along with stable credit metrics—heralds a positive backdrop for corporate bonds.
The significant decline in bond prices seen in 2022 paves the way for an attractive entry point into a high-income asset class with additional capital appreciation upside potential.
Short AAA consumer asset-backed securities and government-guaranteed mortgage-backed securities offer attractive yields and tend to outperform into (and through) recessions.
Taxable U.S. municipal bonds are particularly attractive investments when measured against other investment grade, fixed income asset classes.
The global and U.S. cycles continue to be the major drivers for emerging-market (EM) bonds. While the sell-off in 2022 was led by rates moving higher, this period going into a late-cycle U.S. recession is likely to determine the path of credit spreads in 2023.
The current market presents attractive opportunities for investors as market volatility and economic uncertainty contribute to tighter credit conditions, which in turn contribute to a favorable lending environment.
Investing involves risk, including possible loss of principal. Past Performance does not guarantee future return. All financial investments involve an element of risk. Therefore, the value of the investment and the income from it will vary and the initial investment amount cannot be guaranteed. Fixed‐-income investment options are subject to interest rate risk, and their value will decline as interest rates rise. Potential investors should be aware that Investment grade corporate bonds carry credit risks, default risk, liquidity risks, currency risks, operational risks, legal risks, counterparty risk and valuation risks. Lower-rated securities are subject to additional credit and default risks. Fixed-income investment options that invest in mortgage securities, such as commercial mortgage-backed securities, are subject to increased risk due to real estate exposure. Emerging market debt may be subject to heightened default and liquidity risk. International investing involves greater risks such as currency fluctuations, political/social instability, and differing accounting standards. Private credit involves an investment in non-publicly traded securities which are subject to illiquidity risk. Portfolios that invest in private credit may be leveraged and may engage in speculative investment practices that increase the risk of investment loss. Investments in Private Credit may also be subject to real estate-related risks, which include new regulatory or legislative developments, the attractiveness and location of properties, the financial condition of tenants, potential liability under environmental and other laws, as well as natural disasters and other factors beyond a manager’s control.
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