Fixed Income Roadmap 2023

As cuts in policy rates come more clearly into view we expect yield curves to ultimately steepen in the coming quarters. The US Treasury market is more advanced on this journey whereas European sovereign markets may take longer given inflation dynamics. In the meantime, investors in European fixed income can take advantage of much improved short-end yields and look at US Treasuries as the currency hedging regime turns more favourable.

Corporate debt has a role to play this year but investment grade is preferable. That said, the sizeable spread compression of Q4 has reversed some of the safety margin — investors may see more attractive entry points in the coming months.

Emerging market debt may be at a turning point. Sentiment has certainly improved with emerging markets attracting near record inflows in late January. Yields have fallen quickly recently and a pullback might offer an attractive entry point as fundamentals turn and the rate cycle provides added support.

We see 2023 as the year where central banks try to balance credible inflation management with the avoidance of needless economic pain — by no means an easy task! Expect choppy conditions but also attractive opportunities for tactical and perhaps strategic re-positioning.