With the combination of rising interest rates and a softer CPI print in October, asset managers including the likes of BlackRock, UBS and JPMorgan have come out with bullish calls on bonds.

  • BlackRock is betting on a demand surge for the beaten bonds of US and European issuers. Carolyn Weinberg, global head of product for BlackRock’s iShares and index investments says, “We are at the beginning of a rotation as investors come back into credit. With the rapid move in front-end rates, the curve has repriced credit to attractive levels, particularly as we approach the end of the Fed’s hiking cycle… we expect allocations to fixed income to increase in the next year”.
  • Similarly, UBS Group said that it sees a “once-in-a-decade” opportunity for credit in 2023 whilst also noting that “timing is everything” as it forecasts a recession beginning in April. UBS strategists led by Matthew Mish said, “…by mid-year falling inflation, a reactive Fed, and more resilient IG/HY balance sheets support a recovery. 2023 will be a much better year for US credit returns”. UBS expects 14% in total returns for both IG and HY bonds next year.
  • JPMorgan’s fixed income CIO, Bob Michele said, “Every wealth-management platform in JPMorgan, every institutional client — they’re coming to us, they’re putting money in bonds. Bonds are back”.
  • Citigroup’s David Bailin, global wealth CIO and global head of investments said, “Bonds are going to be a terrific investment” noting that the firm is “deeply overweight” bonds due to a potential US recession pushing interest rates lower in the future.

Bloomberg notes that IG issuers in the US are offering a 5.4% yield on average vs. a five year average of 3.2%. Even more significant are European IG issuers offering an average 4% yield, ~4x times their five year average. Currently, going by weekly fund flows, it is worth noting that US HY funds have seen four consecutive weeks of inflows with the attractiveness of bonds already being seen.

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