Fixed Income Viewpoints: Arrival Time

The Viewpoints series gives investors Lazard’s perspectives on the latest macroeconomic and fixed income news and trends. In this edition, Lazard Asset Management's fixed income team examine the abrupt volte-face in the 10-year U.S. Treasury yield over the past month, and what the turnaround may mean for fixed income investors.

What a difference a month can make.

On 23 October, the U.S. 10-year Treasury yield — the reference rate for financial valuations, U.S. mortgages, and a range of other loans and bonds globally — crossed 5% to hit its highest level in 16 years, and many bond investors were facing the possibility of losses in their portfolios for 2023. Just a few weeks later, the 10-year yield had plunged by some 60 basis points to 4.44% on 17 November, and the clouds had lifted.

Why the sudden turnabout? Almost every economic report and data release pointed to a cooldown in the U.S. economy, from lower inflation to higher unemployment and fewer job openings. That, in turn, suggested that the Federal Reserve may have arrived at the end of its rate-hiking cycle — or at least, the end appears well within sight.

What that means for bond investors was the main topic when Lazard’s fixed income professionals met this month. While speculation on when the Fed will start cutting rates has quickly ramped up in the bond market, our experts were more focused on the current scenario: Across sectors, many bonds likely offer enough yield now to “cushion” them from any further potential losses due to rising rates.

Click here to read the November issue of Fixed Income Viewpoints.