Kontakt MyFidelity Logout
Skip Header

Fixed Income Monthly - March 2023


The bond rally since the beginning of the year has abruptly changed course as persistent inflation forces market participants to change their outlook on the path of interest rates. For the US Federal Reserve (Fed), the market’s expectations of a policy U-turn towards easing have been pushed out to early 2024, having initially priced in a pivot towards the back end of 2023. In this vein, at our recent Fixed Income Spotlight event, over 60% of our polled audience thought the Fed would pivot and cut interest rates in early 2024. There is a strong chance that the central bank may be forced to pivot earlier than this, perhaps in Q4 2023, on the back of the rapid tightening in credit standards which could begin to take a significant toll on the real economy. Refinancing is becoming increasingly expensive for companies and rising interest rates are already having a detrimental effect on the residential mortgage market, as well as auto loans. With the Fed funds rate now at 4.75%, the terminal rate is now priced at 5.50% by September. Empirically as we approach the end of a hiking cycle, this is normally the time to gain duration exposure: government bonds typically outperform higher-risk asset classes at this point in the cycle.

At the same Spotlight event, over 70% of our polled audience indicated a preference for investment grade (IG) bonds as their preferred fixed income exposure in 2023. Case in point, the value proposition for euro IG credit remains attractive, both on an absolute and relative basis. Spreads for the asset class currently price in a lot of bad news and remain relatively cheap versus history, while higher all-in yields make the risk-reward of euro IG, relative to other asset classes and regions, increasingly compelling (especially when hedging back to USD). From a corporate health perspective, euro IG fundamentals are holding steady for now. However, expect some degradation in the credit quality of certain sectors and names as the fallout from a higher ECB refinancing rate weighs on corporates. Nevertheless, careful selection remains with a preference for the highest quality companies with strong liquidity positions and healthy balance sheets, as well as those that are likely to benefit from fiscal support.

Alternatively, consider recession proofing via bonds with asset security. Our analysis shows that sterling denominated investment grade asset-backed credit outperformed straight corporate credit both during both the Global Financial Crisis of 2008 and the COVID-19 sell-off in March 2020, providing some ballast relative to straight corporate bonds. It is important to note that structured credit markets have been dramatically reformed since collateralised debt obligations (CDOs) wreaked financial havoc in 2008, with strict standards now in place to help protect investors and maintain market liquidity.

Meanwhile, inflation linked bonds could still provide a compelling investment opportunity despite easing inflation in recent months. On valuations, real yields have risen substantially over the last 12-18 months. Today, the nominal return on a 10-year US TIPS would amount to +1.4% per year plus US CPI, which is not bad in our view. We simply do not know where inflation will end up, so why not take out some inflation protection while it is relatively cheap to do so.

Steve Ellis
Global CIO Fixed Income

The Fixed Income Monthly provides a forward-looking summary of the medium-term views from the Fidelity Fixed Income team.

Strategy summary
Summary of returns as of 28 February 2023 (%)
Macro and Rates Overview
Inflation-Linked Bonds
Investment Grade Credit
High Yield
Emerging Markets


Do you have any questions about this topic and would you like to network directly with our team? Talk to us – we are happy to be there for you.

Contact us here (more in German)

Important information 

This is a marketing communication. This information must not be reproduced or circulated without prior permission. This information is intended for professional clients only and not a suitable basis for the general public or private investors.

Fidelity only offers information on products and services and does not provide investment advice based on individual circumstances, other than when specifically stipulated by an appropriately authorised firm, in a formal communication with the client.

Fidelity International refers to the group of companies which form the global investment management organisation that provides information on products and services in designated jurisdictions outside of North America. This communication is not directed at and must not be acted upon by persons inside the United States and is otherwise only directed at persons residing in jurisdictions where the relevant funds are authorised for distribution or where no such authorisation is required. It is your responsibility to ensure that any service, security, investment, fund or product outlined is available in your jurisdiction before any approach is made to Fidelity International. 

Unless otherwise stated all products and services are provided by Fidelity International, and all views expressed are those of Fidelity International. Fidelity, Fidelity International, the Fidelity International logo and F symbol are registered trademarks of FIL Limited. 

For German Wholesale clients issued by FIL Investment Services GmbH, Kastanienhöhe 1, 61476 Kronberg im Taunus. 

For German Institutional clients issued by FIL (Luxembourg) S.A., 2a, rue Albert Borschette BP 2174 L-1021 Luxembourg. 

For German Pension clients issued by FIL Finance Services GmbH, Kastanienhöhe 1, 61476 Kronberg im Taunus. 

Investors/ potential investors can obtain information on their respective rights regarding complaints and litigation in English here: Complaints handling policy (www.fidelity.lu) and in German here: Beschwerdemanagement (www.fidelity.de). The information above includes disclosure requirements of the fund’s management company according to Regulation (EU) 2019/1156.

Unless stated differently, information dated as of March 2023.