But despite the headwinds, all-in yields remain appealing, particularly relative to opportunities in other asset classes. We maintain a preference for high grade and investment grade corporate bonds. We also see upside for emerging market bonds, which should benefit from China's reopening and support for the nation's property sector.


Fixed income yields have been back on the rise after falling at the start of 2023.


  • The yield on 10-year US Treasuries, which had fallen as low as 3.37%in late January, rose back to 3.92% by 6 March—having hit an intraday high of 4.09% last week.
  • The 2-year yield is up from a low of 4.07% in late January to 4.84%on 6 March.
  • The move reflects indications that US inflation is not falling as quickly as expected, while US unemployment has dropped to its lowest level since 1969.

But despite headwinds, we still see opportunities in fixed income.


  • All-in yields are still attractive, in our view, particularly relative to opportunities in other asset classes.
  • While inflation has remained higher than expected, we believe the inflection point has been delayed, not derailed.
  • The pace and scale of additional rate hikes from the Fed are unlikely to match those of 2022.

So we are positive on high grade and investment grade bonds, along with EM sovereigns.


  • High grade and investment grade bonds still provide some protection against recession risks, despite the recent moderation in yields. By contrast, HY spreads look vulnerable given slowing growth and earnings.
  • We are also most preferred on emerging market bonds, as investors position for the inflection point in global growth in 2023.

Did you know?


  • As of 6 March, markets are pricing a peak in US interest rates of around 5.44% by October 2023, versus the current target range of between 4.5% and 4.75%.
  • The Fed's favorite measure of inflation, the core personal consumption expenditure index, excluding food and energy, increased by 0.6% over the month in January, accelerating from 0.4 per cent in December. The year over-year rate also picked up to 4.7% from an upwardly revised figure of 4.6% in December, ahead of consensus expectations of 4.3%.
  • Core Eurozone inflation for February rose to 5.6%, above the 5.3% forecast and the fastest rate since the formation of the single currency in 1999.

Investment View


High grade and investment grade bonds still look attractive as defensive assets, following the sharp rise in yields in 2022. We are most preferred on emerging market bonds. We see the performance of this segment being driven by carry and upside on special situations in the distressed space. This includes sovereigns willing and able to work with the International Monetary Fund or other international lenders, or where we see upside to potential restructuring scenarios. Click here to read more.


Main contributors - Christopher Swann, Vincent Heaney


Content is a product of the Chief Investment Office (CIO).


Original report - Will growth outperform further?, 9 March 2023.