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Public Fixed Income

2024 Outlook Public Fixed Income

December 2023 – 9 min read

With heightened uncertainty and widespread risks blurring the outlook, our investment professional explores the future prospect for the global high yield asset class.

Matt Livas: There is a lot of uncertainty in the world today—are we are headed into a recession, and how long or severe might it be? What will interest rates do going forward? Against this backdrop, what has the high yield market surprised you most over the past year and how do you see those dynamics playing out in the next 12 months? 

Brian Pacheco: Looking at the high yield markets, one of the biggest surprises this year has been the performance across loans and bonds. While that was partly due to high yield’s shorter duration/ lower interest rate sensitivity, it was also a result of the lack of negative catalysts. As we expected, the wave of defaults that some were expecting at the start of the year have not transpired, and the ‘higher-for-longer’ reality has been a tailwind for loans in particular, which are floating-rate. At the same time, downgrades have been manageable.

The big question, of course, is whether the strength can continue if the macro picture starts to worsen. Part of that answer lies in the levels of current yield and return. Looking at the U.S. high yield markets, loans have returned approximately 10% year-to-date and are currently yielding around 9.5%.1 U.S. high yield bonds are up almost 5% year-to-date, with yields around 9.5%.2 Yields at these levels may offer a substantial cushion in the event of a meaningful economic slowdown.

1. Source: Credit Suisse. As of October 31, 2023.
2. Source: Bank of America. As of October 31, 2023.

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Brian Pacheco

Portfolio Manager, Global High Yield

Matt Livas, CFA

Managing Director

The document is for informational purposes only and is not an offer or solicitation for the purchase or sale of any financial instrument or service. The material herein was prepared without any consideration of the investment objectives, financial situation or particular needs of anyone who may receive it. This document is not, and must not be treated as, investment advice, investment recommendations, or investment research.

In making an investment decision, prospective investors must rely on their own examination of the merits and risks involved and before making any investment decision, it is recommended that prospective investors seek independent investment, legal, tax, accounting or other professional advice as appropriate.

Unless otherwise mentioned, the views contained in this document are those of Barings. These views are made in good faith in relation to the facts known at the time of preparation and are subject to change without notice. Parts of this document may be based on information received from sources we believe to be reliable. Although every effort is taken to ensure that the information contained in this document is accurate, Barings makes no representation or warranty, express or implied, regarding the accuracy, completeness or adequacy of the information.

Any forecasts in this document are based upon Barings opinion of the market at the date of preparation and are subject to change without notice, dependent upon many factors. Any prediction, projection or forecast is not necessarily indicative of the future or likely performance. Any investment results, portfolio compositions and/or examples set forth in this document are provided for illustrative purposes only and are not indicative of any future investment results, future portfolio composition or investments. The composition, size of, and risks associated with an investment may differ substantially from any examples set forth in this document. No representation is made that an investment will be profitable or will not incur losses. Where appropriate, changes in the currency exchange rates may affect the value of investments.

Investment involves risks. Past performance is not a guide to future performance. Investors should not only base on this document alone to make investment decision.

This document is issued by Baring Asset Management (Asia) Limited. It has not been reviewed by the Securities and Futures Commission of Hong Kong.

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