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Fixed income struggles

After 2022, the worst year in record (224 years of data), investors were (and still are) expecting a good year for bonds, despite inflation pressures and Fed #ratehikes. So far, no mercy. As you can see in the chart below, only t-bills and the 2 year have provided a positive and meaningful return for 2023. The long end keeps falling in price, and the more duration you add, the more pronounced the fall. Spreads, both #investmentgrade and #highyield, are not narrowing to compensate for the recent falls, but have provided positive YTD returns. Fixed income investing is proving to be challenging these days, and so far the problem has been duration, not credit. The next shoe to drop will be spreads widening, credit downgrades and defaults.

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Chart source: Bianco Research.

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