Fixed income

What’s the next move for global fixed income markets?

July 10, 2024 - 1 min read

Loomis, Sayles & Company

There are several structural and cyclical factors influencing inflation, interest rates, and global fixed income markets as we move into the second half of 2024 and beyond, says Matt Eagan, CFA^®, Head of Full Discretion Team, Portfolio Manager, Loomis, Sayles & Company. He explains the key bond market drivers, opportunities in corporate bonds, and macro risks fixed income investors should be considering.

Highlights include:

Higher for longer: Higher interest rates and inflation are being driven by structural fiscal deficits in many advanced economies related to demographics, security, electrification, and nearshoring. This is seen as the main drivers for higher real rates and inflation premiums in the long term.
Expectations for Fed rate cuts: Inflation should bottom out and decline below 3% in the U.S. by the end of 2024, as the economic momentum slows down and the base effects fade. This would allow the Fed to cut rates at least once this year, and possibly continue into the next year, ending with a policy rate around 3.5%.
Yield curve positioning: A shallow rate cutting cycle and a steepening of the yield curve is expected, with most of the yield reduction happening in the front-end of the curve, and the long-end remaining rangebound.
US dollar headwinds: The dollar could lose some of its strength, as the US economy converges with the rest of the world and other central banks start to ease.
Macro risks to watch: Risks of inflation re-accelerating, elections causing market volatility, and the rivalry between China and the U.S. are among top macro risks.
Credit opportunities: The health of the credit market looks good, with Loomis Sayles’ Credit Health Index score showing improvement and low losses at this late-expansion phase of the economic cycle.

The provision of this material and/or reference to specific securities, sectors, or markets within this material does not constitute investment advice, or a recommendation or an offer to buy or to sell any security, or an offer of any regulated financial activity. Investors should consider the investment objectives, risks and expenses of any investment carefully before investing. The analyses, opinions, and certain of the investment themes and processes referenced herein represent the views of the portfolio manager(s) as of June 2024. There can be no assurance that developments will transpire as may be forecasted in this material. The analyses and opinions expressed by external third parties are independent and does not necessarily reflect those of Natixis Investment Managers.

All investing involves risk, including the risk of loss. The views and opinions expressed may change based on market and other conditions. They are subject to change at any time based on market and other conditions. There can be no assurance that developments will transpire as forecasted. Past performance is no guarantee of future results.

Fixed income securities may carry one or more of the following risks: credit, interest rate (as interest rates rise bond prices usually fall), inflation and liquidity

Credit risk is the risk that the issuer of a fixed-income security may fail to make timely payments of interest or principal or to otherwise honor its obligations.

Interest rate risk is a major risk to all bondholders. As rates rise, existing bonds that offer a lower rate of return decline in value because newly issued bonds that pay higher rates are more attractive to investors.

Duration risk measures a bond's price sensitivity to interest rate changes. Bond funds and individual bonds with a longer duration (a measure of the expected life of a security) tend to be more sensitive to changes in interest rates, usually making them more volatile than securities with shorter durations.

Unlike passive investments, there are no indexes that an active investment attempts to track or replicate. Thus, the ability of an active investment to achieve its objectives will depend on the effectiveness of the investment manager.

Natixis Distribution, LLC (fund distributor, member FINRA | SIPC) and Loomis, Sayles & Company, LLC are affiliated.

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