Higher inflation and rising central bank rates will persist in the coming months but, importantly, growth has softened. Fixed income markets suggest that the more central bank tightening we see, the harder the economic landing may be. This scenario would create a volatile but more favourable backdrop for fixed income.
Jason Simpson, Senior Fixed Income ETF Strategist, provides an overview of the key themes for fixed income investors to consider in Q3.
Spreading the Net with Global Aggregate
Amid continued challenges to fixed income, one potential option is to look at broader strategies with more diversified risks.
Winds of Change: Reasons to Look at Investment Grade
We see positive signs for investment grade credit given the outlook for inflation, the peaking of rates, economic growth and yield.
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1 State Street Global Advisors, as of June 30, 2022.
2 State Street Form 10-K, as of December 31, 2021. The fixed income flows and holdings indicators produced by State Street Global Markets — the investment, research and trading division of State Street Corporation — are based on aggregated and anonymized custody data provided to it by State Street, in its role as custodian. State Street Global Advisors does not have access to the underlying custody data used to produce the indicators.
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This communication is not intended to be an investment recommendation or investment advice and should not be relied upon as such.
Bonds generally present less short-term risk and volatility than stocks, but contain interest rate risk (as interest rates rise, bond prices usually fall); issuer default risk; issuer credit risk; liquidity risk; and inflation risk. These effects are usually pronounced for longer-term securities. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss.
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