Whether Pause or Pivot, Look to Bonds

An allocation to fixed income may help investors navigate a potential recession as well as uncertainty around the Federal Reserve’s policy trajectory.

• In its effort to tame inflation, the U.S. Federal Reserve is likely to pause at the top of
its interest rate cycle rather than quickly pivot toward rate cuts. But in either scenario,
history suggests fixed income can offer attractive return potential, especially relative
to equities.
• We favor bonds for their diversification, capital preservation, and upside opportunities.
Starting yields appear competitive and we favor high-quality duration and liquid credit
exposures, as well as U.S. agency mortgage-backed securities.
• We believe the overall resilience seen in equity markets in 2023 would diminish in a
downturn. Earnings expectations appear too high, and valuations too rich. We are
underweight equities in multi-asset portfolios.