Fixed Income Market Commentary

Last Updated: 4/26/2022

Q4 2022

With the 1st quarter of 2023 behind us, let’s take a look at the performance of the broad indices and look ahead to the next 3 quarters.

Table  Description automatically generated

Year-to-date gains have been impressive, especially with inflation near 40-year record levels, the recent failure of several large banks both domestically and abroad, and the Fed considering further rate hikes.  So why are markets performing so well?  One reason is that the bond market is betting the Fed will have to start cutting rates sooner rather than later.  The largest driver of the 2022 capital market selloff was the rapid rate of interest rate hikes.  We are now in a period where “bad news is good news.”  Economic data is starting to show signs of slowing, which is causing bond yields to fall (and remember this causes bond prices to go up).  As yields fall, the equity markets are starting to reverse the losses attributed to higher future rates.  This is supported by the outperformance of technology stocks (as seen above in the Nasdaq performance).  The tech sector was impacted most by the threat of higher rates (in 2022 the Nasdaq lost 33%, while the DOW only lost 8.8%).  As you would expect, with the hope of lower rates, tech stocks are unwinding their losses.

What should we expect throughout the rest of 2023?  The market is currently pricing in a 70% chance that the Fed will hike another .25% in May.  Banks appear to have stabilized due to the liquidity measures taken by the Fed (long story short, the Fed has given banks a way to borrow money without having to sell fixed-income securities that are currently priced at a discount).  Inflation is slowing, although still high compared to historical levels.  One very interesting data point is the yield curve inversion.  In this case, the 2 yr treasury yield has been higher than the 10 yr treasury yield since March of 2022.  This is the longest yield curve inversion since the late 1970’s, and has historically been considered a strong predictor of a recession in the near future. 

The factors above hint at possible tailwinds for bonds in the coming quarters.  If the inverted yield curve does in fact presage a coming recession, then the Fed will likely start cutting rates to avoid a deep and proctracted economic contraction.  Conversely, if the Fed does effectively bring down inflation without causing a recession, the lower inflation could lead to lower future rates as well.  Either way it may be an opportune time to consider the bond allocation of your portfolio.  We are currently seeing tax-free, high quality municipal bonds available in the 3.5-4.25% range.  Short-term treasuries are still providing 4-5% yields.  Although no one can precisely predict the next few quarters, it’s possible that we may not see bonds at these levels for long if the market is correct and lower yields are ahead.

Should you have any questions about the markets, specific opportunities, or your portfolio, we highly encourage you to schedule a meeting with your financial advisor today.

VP of Special Projects & Advisor

Vice President & Advisor

Any questions, comments, or feedback? reach out to us

    All investing involves some degree of risk, whether it is associated with market volatility, purchasing power or a specific security. There is no assurance any investment strategy will be successful or that a fund will meet its investment objectives. An investment in a mutual fund or exchange–traded fund (ETF) will fluctuate and shares, when sold, may be worth more or less than their original cost. ETFs are subject to risks similar to those of stocks and may yield investment results that, before expenses, generally correspond to the price and yield of a particular index. There is no assurance that the price and yield performance of the index can be fully matched. Asset allocation does not guarantee a profit or protect against loss. Advisory accounts are not designed for excessively traded or inactive accounts and may not be suitable for all investors. Please carefully review the Amuni Financial advisory disclosure document for a full description of our services, including fees and expenses. The minimum account size for these programs is between $25,000 and $200,000.

    For certain Investors, the income from municipal bonds designated AMT may be subject to the Alternative Minimum Tax. Discount bonds may be subject to capital gains tax. Minimum purchase amounts may apply. Not all municipal bonds are free from both state and federal taxes. If bonds are insured, no representation is made as to the insurer’s ability to meet its commitments. Insurance does not remove market or safety risk. All bond ratings are from S&P or Moodys and may be under review for possible downgrade. Bond offering yields include calculations which are the lower of the yield to maturity or the yield to call. Underlying ratings are assigned by a rating agency to such security without regard to credit enhancement or assigned to other securities of the same issuer having the same features and security structure but without credit enhancement. Please consult your Registered Representative to determine the appropriateness of investing in these or other securities. Additional municipal trade price information and disclosure documents are available on the MSRB’s Electronic Municipal Market Access (EMMA) system (

    Privacy Settings
    We use cookies to enhance your experience while using our website. If you are using our Services via a browser you can restrict, block or remove cookies through your web browser settings. We also use content and scripts from third parties that may use tracking technologies. You can selectively provide your consent below to allow such third party embeds. For complete information about the cookies we use, data we collect and how we process them, please check our Privacy Policy
    Consent to display content from Youtube
    Consent to display content from Vimeo
    Google Maps
    Consent to display content from Google
    Consent to display content from Spotify
    Sound Cloud
    Consent to display content from Sound