Opportunities on the Horizon: Investing Through a Slowing Economy

Thematic updates | WEALTH OUTLOOK 2023 | MID-YEAR EDITION | 34 Bonds are Back Again: Where to find potential fixed income opportunities now Bonds are back and there are numerous potential opportunities to diversify bond portfolios, add to duration, and possibly earn higher total returns. This is a time for portfolio action in the fixed income space. BRUCE HARRIS Head of Global Fixed Income Investment Strategy STEFAN BACKHUS Head of Alternatives Strategy, Alternative Investments ƒ Wise bond investors may have a second opportunity to diversify portfolios and achieve high levels of income. As banks reduce lending and capital markets become less liquid, investors may be able to increase their bond returns by changing where and how they invest ƒ Investors can expect the high rates of returns they are earning in money market funds and Treasury bills (T-bills) to decline meaningfully over the coming 12-24 months ƒ To maintain current returns, longer-duration bonds and investment grade (IG) corporate or municipal bonds may provide opportunities for income and appreciation while offsetting potential credit spread widening during a recession ƒ For suitable investors, market illiquidity is creating investment opportunities in hedge funds and private credit. Skilled alternative bond managers may be abe to earn higher returns by investing in markets where the “flight to safety” in money markets and government bonds has left high yielding credits in search of buyers 3.1