- Jonathan Poyer
Can the Rebound Win the Game?
What to think after a year like 2022? 2022 finished as one of the worst performance years in the last 35+ years across all asset classes:
2022 was truly an unprecedented year as we saw red in all sectors. But what really stood out was the carnage that we saw in the fixed income markets. 2002 and 2008 matched the severity of the equity markets but those years saw the AGG finish in the green, whereas this year showed nowhere to hide. Commodities and oil were about the only assets that finished the year positive.
So...where do we go from here? Fixed income markets tend to be positive and rebound after negative years. In most cases, when you see bonds sell off, yields go up and that makes things more attractive.
Fixed income is starting to look very good to start 2023 and as an opportunity for 2023.
A very large reason for potential optimism is that many fixed income securities are still anchored in strong fundamentals as 2022's woes were, in large part, a result of technical factors. Technicals really weighed on the market as a whole and that was very much manifest in terms of fund flows where a large amount of AUM made its way into money market funds:
As fixed income becomes more attractive, we should see money come back into a relative value sort of trade into fixed income. As we have said in the past: when money goes out, it tends to leave indiscriminately but when it returns, it tends to seek out the best value with a focus on fundamental strength.