Market GPS: Fed Policy to Cast Long Shadow over 2020

Co-Head of Global Bonds Nick Maroutsos identifies the opportunities and risks he sees for fixed income investors in 2020 as the Federal Reserve’s near-term policy path remains far from certain.

Key Takeaways

  • While we expect the current trend of global easing to continue, much of the fixed income investment environment may be dictated by the Fed, which we believe hopes to delay rate cuts until a time that a slowing economy better merits them.
  • With equities and corporate credits richly valued, this is not a time, in our view, to reach for yield or replace interest rate risk with credit risk; rather, bond investors should stay focused on capital preservation, income generation and reduced volatility.
  • We believe some of the most attractive fixed income opportunities with regard to returns and diversification lie outside the U.S., especially when hedged back to the U.S. dollar.

Which market trends should investors
watch in the year ahead?