It has been a difficult year for fixed income in general. Stocks and bonds rarely decline in tandem in a calendar year, and 2022 was the only exception in the 45-year period dating back to 1977.
This reflects the fact that the US Federal Reserve (Fed) hiked aggressively when interest rates were near zero, which should change in 2023. Lower inflation prints coupled with growth concerns could allow the Fed to slow down and bonds 200 could offer some relief from volatile equity markets as recession concerns take centre stage.
Interest rate turmoil hit bonds hard in 2022. But with the Fed expected to end its hiking cycle in mid-2023, investors are faced with two options: sit on the sidelines or invest.
High inflation and hefty rate hikes by the Fed have given rise to a bond market rout. While painful to endure in the moment, these losses can set the stage for higher income down the road. Starting yields are now a lot higher.
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