At the same time, the Fed has mostly ignored the impact of easy financial conditions—the combination of stock, bond, and credit conditions—offsetting increases in interest rates by bolstering wealth and confidence.
The tendency to blindly follow these rules has led investors towards prematurely de-risking and over-estimating the likelihood of recession.
Elections have been anything but easy for investors. What has been easy is financial conditions in the US relative to the level of policy rates, fostering the debate over the degree of policy restrictiveness as global monetary easing begins.
Elevated all-in yields in high yield credit present an attractive opportunity for income-seeking investors to lock in higher levels of income. Of course, that comes with a much higher degree of risk as compared to sitting in cash.
A favorite Mark Twain aphorism states, “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”
Bond markets expect more cuts than the Fed is signaling, and this expectation largely reflects a return to pre-COVID dynamics of low inflation, massive central bank support, and suppressed term premia.
The use of “factors,” or broad and persistent drivers of investment returns, has grown rapidly in equity markets, but with less adoption in fixed income.
As investors face continued macroeconomic and market uncertainty, evolving the 60/40 portfolio of stocks and bonds to include alternative investments may help build portfolio resiliency.
Rising rates in the second half of the year have brought year-to-date returns for the US Aggregate (“Agg”) benchmark index negative.
The US Federal Reserve (“Fed”) paused rate hikes in June, but signaled it expects to deliver 50 basis points of additional hikes this year.
Transitioning into the post-COVID investment environment shifts the foundations of portfolio construction that investors relied on in recent decades. On full display in 2022, inflation and recession risk punished both bonds and stocks together to historic declines.
The geopolitical crisis in Ukraine creates a stagflationary shock for global economies. The plan to fight inflation just got far more complicated for global central banks.
BlackRock bond experts reveal the top themes driving our fixed income outlook. Learn the latest key risks and opportunities in today’s bond market.
In a post-coronavirus investment world, Jeff argues that investors should be rethinking the role of fixed income in portfolio construction and ask themselves if they are at risk of investing without a parachute?
The flattening Treasury yield curve is getting a lot of attention, but there’s another flattening that is arguably of greater importance: the narrowing return gap between low- and high-risk assets. Jeff explains.
