Review of 2023 Performance and Outlook for Rates and Risk Assets in 2024

In 2023, the US bond market experienced a pattern of returns that remained negative for most of the year. However, strong performance in November and December due to the Federal Reserve's accommodative stance on inflation and potential lower rates in 2024 resulted in a positive annual return of 5.5%. Looking ahead to 2024, the consensus expectation is a soft landing for the economy, with stable growth and lower inflation. This shift in the fundamental backdrop of lower inflation allows for a potential shift in monetary policy towards lower rates rather than higher rates. The focus for investors in 2024 will be on being selective and cautious, as many areas of credit, particularly corporate bonds, are deemed expensive. The recommendation is to focus on the belly of the yield curve, particularly the two to five-year range, for attractive yields compared to inflation trends. Overall, there is a constructive outlook for fixed income in 2024, but selectivity and caution will be key.