Bond managers expect a better 2023 amid recession and volatility

By Anisha Sircar and Lisa Pauline Mattackal

Nov 14 (Reuters) – Bond portfolios could post better returns next year as investors seek protection from the economic downturn and volatility in other assets, bond fund managers said.

Bonds may start to “normalize a bit” after adjusting to the end of quantitative easing and negative rates this year, Jim Cielinski, global head of fixed income at Janus Henderson Investors, said on Friday. Reuters Global Markets Forum (GMF).

“Bond prices are likely to … rise in a friendlier expectation for the Federal Reserve,” he said.

Bond prices have been affected by rising interest rates and uncertainty surrounding central bank policy this year.

“US fixed income looks attractive at the moment,” said Jonathan Mondillo, head of North American fixed income at abrdn.

Mondillo said bond markets will remain volatile in 2023, but expected positive total returns, particularly in corporate and municipal debt, both of which look attractively priced relative to equity markets.

The ICE BofA U.S. Treasury Index is poised for its biggest annual decline on record, while the benchmark 10-year U.S. Treasury yield trades around its highest levels since 2008.

“The worst is probably behind us,” Mondillo said.

Both managers see an economic downturn next year, with Cielinski pointing to “credit growth, real incomes and high inventories” as signs of trouble ahead.

Cielinski recommended mortgages and other asset-backed securities, as well as more permanent allocations to cash and treasury instruments.

“Asset classes that are too shaken by liquidity but have better protection against a slow economy look attractive,” he said.

As the most volatile period for traders in years draws to a close, the year-end race for cash and high-quality assets is likely to prove tougher than usual in the markets.

(Join GMF, a chat room hosted on Refinitiv Messenger: https://refini.tv/33uoFoQ)

(Reporting by Lisa Pauline Mattackal and Anisha Sircar in Bengaluru; Editing by Divya Chowdhury and Kirsten Donovan)

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