Fixed Income Investment Strategy — October 2023

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

Market Outlook

• In September, the FOMC held rates steady but adjusted the “dot plots” to include two less cuts in 2024. This accelerated an aggressive re-pricing of yields on the long-end of the curve, with 10yr yields moving 73 bps higher and 2yr yields only 15 bps. The result was a -3.2% return for the broad market during 3Q, pushing YTD returns negative.
• We believe rates will be capped by economic weakness into year-end and during 2024. We expect a mild recession in 1H24 as consumer strength is worn down by high rates, high prices in areas that matter to consumers (food and energy), and further erosion of excess savings.
• For fixed income investors, giving back much of the year’s gains was painful, but it skews future returns even more to the positive side given higher yields; and curve steepening makes the duration extension an easier decision.