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Quarterly taxable fixed income outlook: Rates, risk and recession
With the Fed’s hiking cycle nearly over, investor focus shifts to recession woes. Recent bank turmoil raised the risk profile of sectors like contingent capital securities, but we remain constructive on the U.S. bank sector. We also believe any recession should be moderate and short lived. We favor non-Treasury spread sectors, with an up-in-quality bias. We currently see attractive opportunities in preferred securities and BB-rated high yield and senior loans. Wider credit spreads present a more attractive entry point across many fixed income sectors.
KEY TAKEAWAYS
- Positive first quarter returns reflect the combined benefits of declining market yields and higher income.
- The increased risk in the bank sector highlights the importance of a well-diversified, actively managed portfolio.
- We favor credit sectors, especially higher quality segments of high yield and senior loans, as well as preferred securities.
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