Payden & Rygel

rowth concerns have grabbed the market’s attention due to fears of federal cutbacks in spending and employment. We don’t see evidence, yet that DOGE (the US Department of Government Efficiency) will derail growth (i.e., cause a recession or even a substantial slowdown).

The forces shaping fixed-income markets find themselves at a confluence of economic, fiscal, and political factors heading into the new year. Inflation dynamics remain in flux, a new Treasury Department strategizes the balance between fiscal and monetary conditions, and Donald Trump’s incoming second administration all introduce important dimensions to policy and growth.

There seems to be a widespread view that inflation will remain “sticky” or re-accelerate in 2025. Even the Fed expects inflation to moderate slower in 2025, with the median policymaker expecting core PCE inflation to only reach 2.5% in the December 2024 Summary of Economic Projections (SEP) and not back to 2% until 2027. The central tendency of the FOMC projections skews from 2.5-2.9%, giving us a sense of the Committee’s bias. 

As the world’s 5th largest economy and most populous democracy, India is increasingly important for global investors and policymakers.

In the last several years, fixed-income opportunities expanded for foreign investors looking to gain exposure to India. While the Indian sovereign does not issue bonds in dollars, Indian corporates do, and they offer exposure to attractive sectors. Separately, foreign investors are increasing exposure to India’s rupee-denominated government debt on the back of the June 2024 inclusion into JP Morgan’s most widely followed emerging market local bond index.

Despite predictions of a significant decline in both the value and importance of the U.S. dollar, as everyone now knows, the drop in the dollar didn’t happen. Compared to other developed countries’ currencies, such as the Japanese yen, the dollar is up more than 30% since 2022. Further, since 2011, the dollar is up almost 40% compared to a broad basket of currencies! So why were the dollar bears so wrong?

Major central banks easing policy, solid economic growth and moderating inflation should bode well for global investment grade corporate credit. So, is global investment grade corporate the sweet spot in fixed income? We think it might just be.

The absolute return strategy offers a compelling profile. Yields are above 7%, while the average maturity of the strategy is only three years (at the time of writing).

As a bond investor, you might wonder, “What’s the perfect recipe for the fair value of a 10-year Treasury yield?” The U.S. 10-year Treasury yield is one of the most important interest rates in the world. It affects everything from mortgage rates to stock prices.