The bond market suffered significantly in 2022. But the past is history and while it’s impossible to know what’s in store for bonds in 2023, the outlook looks much brighter.
The Federal Reserve seems likely to continue raising interest rates, but any increase appears to be slight with the impact on bonds minimal. Bonds still play an important role in a diversified portfolio. Three traditional key benefits of bonds within a portfolio are liquidity, income, and portfolio ballast. In 2022, the portfolio ballast benefit was seemingly missing. Even though bond prices declined much less than stock prices, this decline was not consistent with historical bond behavior. With yields now higher and our outlook for inflation and economic growth lower, we believe that bonds will be better able to deliver on the ballast role.
We are excited to see how bonds fare this year and believe 2023 will be a much better year for fixed income investors. To read more, download our new perspective, Bonds are Back, or watch a replay of a recent webinar on this topic featuring Andy Kaufman, CCM’s chief investment officer, which is available on our videos and webinars page.