Fixed Income Market Outlook for 2024: Resilience, Opportunities, and Strategic Investments
Resilient Economy Defies Recession Forecasts
In 2023, the market widely anticipated a recession in the second half of the year. However, economic indicators consistently defied these expectations, demonstrating remarkable resilience throughout the year. Nominal GDP consistently outperformed market expectations, indicating a robust economy.
No Recession Expected in 2024
JoAnne Bianco, a partner at BondBloxx Investment Management, shared her perspective on the economic outlook during a VettaFi-hosted webcast. She believes that the U.S. economy will continue to exhibit resilience in 2024, despite the higher interest rate environment. Bianco does not anticipate a recession at any point during the year.
Fixed Income Rebound in 2023
Following negative returns in 2022, fixed income sectors experienced a notable rebound in 2023. This positive performance was attributed to the resilient economy and the Federal Reserve’s approach to interest rate hikes. With the Fed nearing the end of its rate-hiking cycle, Bianco expects fixed income investments to present numerous opportunities in 2024.
U.S. High Yield and Emerging Markets Sovereign Debt Lead the Way
Among the fixed income sectors, U.S. high yield stood out as a top performer in 2023, delivering returns of over 13% after experiencing a decline of 11% in the previous year. Emerging markets sovereign debt also rebounded significantly, ranking as the second-best performer with returns exceeding 11%. This recovery followed a challenging 2022, where EM debt experienced the worst performance in the fixed income market.
Under-Allocation to High Yield and the Importance of Precise Exposures
Bianco highlighted the under-allocation to high yield in 2023, despite its attractive characteristics for investors. She emphasized the importance of looking beyond broad-based benchmarks in fixed income and investing in more precise exposures. This approach allows investors to target specific sectors and regions that offer compelling opportunities.
BondBloxx ETFs: A Suite of Sector-Specific High Yield Bond Funds
BondBloxx offers a range of sector-specific high yield bond ETFs that enable investors to target specific industries. These ETFs include the BondBloxx USD High Yield Bond Energy Sector ETF (XHYE), the BondBloxx US High Yield Consumer Cyclicals Sector ETF (XHYC), and the BondBloxx USD High Yield Bond Industrial Sector ETF (XHYI).
BondBloxx JP Morgan USD Emerging Markets 1-10 Year Bond ETF (XEMD)
For investors seeking exposure to EM sovereign debt, BondBloxx provides the BondBloxx JP Morgan USD Emerging Markets 1-10 Year Bond ETF (XEMD). This fund focuses on short- to intermediate-term U.S.-dollar-denominated EM bonds, excluding bonds with maturities longer than 10 years.
Conclusion
The fixed income market outlook for 2024 is shaped by the resilience of the U.S. economy, the Fed’s approach to interest rates, and the opportunities presented by various sectors and regions. By strategically allocating to precise exposures, investors can position their portfolios for potential growth and income generation in the year ahead.