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Public Fixed Income

2024 Outlook Public Fixed Income

November 2023 – 9 min read

With heightened uncertainty and widespread risks blurring the outlook, our credit market experts explore the future prospects for asset classes ranging from high yield, to investment grade credit, to emerging markets debt.

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

Ricardo Adrogué: The magnitude of the U.S. Federal Reserve’s (Fed) rate-hiking cycle was clearly surprising this year, but perhaps an even bigger surprise was that the U.S. economy continued to accelerate through those hikes—especially against a backdrop of a rising 10-year Treasury yield, a stronger U.S. dollar, and slowing growth across most of the world. What is arguably even more significant is that the inflation-adjusted interest rate has moved up by 300 basis points (bps) in the past 18 months.1 And that may suggest that the global economy, and the U.S. economy in particular, may be headed for a longer period of strong growth.

Brian Pacheco: Looking at the high yield markets, one of the biggest surprises this year has been the strong 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 high yield markets, loans have returned approximately 10% year-to-date and are currently yielding around 9.5%.2 U.S. high yield bonds are up almost 5% year-to-date, with yields around 9.5%.3 Yields at these levels should offer a substantial cushion in the event of a meaningful economic slowdown.

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

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Dr. Ricardo Adrogué

Head of Global Sovereign Debt & Currencies

Yulia Alekseeva, CFA

Portfolio Manager & Head of Securitized Credit Research

Brian Pacheco

Portfolio Manager, Global High Yield

Matt Livas, CFA

Managing Director

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