Fixed Income Investment Strategy — July 2023

July 10, 2023 — Fixed Income Investment Strategy provides an overview of Sage’s market outlook and sector positioning.

Market Outlook

• The Fed continues to deliver a more hawkish message, which has caused front-end yields to move higher and the yield curve to invert further, as markets price in a greater chance of more hikes, including one in July.
• The US economy still appears resilient, driven by the slow lag effect of a tightening job market and a rundown of stimulus, which will give the Fed flexibility to have an extended pause with cuts in the latter half of 2024.
• The macro outlook is favorable for core fixed income. A combination of attractive yield carry and peaking rates skews returns to the upside over the coming quarters. Regardless of Fed timing, both market and dot plots have rates significantly lower over the next one to two years, and yield carry is the most attractive it has been in 15 years.