Taxable Fixed Income 4Q21 Market Review & Outlook

January 18, 2022 — For fixed income investors, a taper-then-hiking cycle does not create the best return environment, but we also don’t expect deeply negative returns or much higher long-end rates in Q1 given the low terminal rate of around 2%. While the year has started poorly with a continued repricing in rates that has led to negative returns, the good news is that much of the Fed’s game plan for the next year-and-a-half is now priced into rates. For the first half of 2022, we expect only modestly higher longer rates and for further curve flattening as we get close to liftoff in rate hikes. This should translate to flat returns by mid-year as yield accrual offsets some of the early year damage, and opportunities in active duration, curve shifts, and name selection add possible excess return.