Fixed Income Investment Strategy — January 2024

January 17, 2024 — Fixed Income Investment Strategy provides an overview of Sage’s market outlook and sector positioning.

Market Outlook

• Strong economic momentum in the back half of 2023 and expectations of a Fed pivot have provided an optimistic tone to the consensus macro view, but we see a challenging backdrop ahead.
• Our base case is a “softish” landing with weak growth, as consensus predicts, but a higher probability of one or two quarters being pushed into modestly negative territory. Weaker growth should continue to moderate inflation, but we expect the deflationary pace to be less impressive in 2024, with supply-side shocks now largely normalized.
• Heading into 2024 we are focused on quality. We believe a full duration position makes sense at this point in the cycle to capture upside and hedge against macro risks. For credit, we see spreads well supported by demand for yield, but given spread levels and overall economic risks, the plan is to capture the yield of a full allocation but stay defensive and low beta, allowing security selection to provide the alpha opportunities.