Markets anticipate easing in monetary policy tightening, fixed income saw renewed demand across the board. Over the month of November, Bloomberg Global Aggregate, US investment grades, US high yields, and Emerging Markets US dollar bonds gained 4.71%, 5.18%, 2.17%, and 6.63% respectively.

Moving toward the end of the year, we see signs of inflation peaking or close to the peak across major economies, the high base effect is also expected to bring inflation lower for the coming year. Expectations on the tightening monetary policy has been dialled down over the month, with major central banks expected to slow down, or even pause on hikes. We too expect the rapid rate hiking cycle to gradually ease in the short to medium term. Although there are still ways to go before terminal rate is reached, long end yields tend to peak before the rate hike cycle ends.

Henceforth, we do see opportunities begin to emerge in the fixed income markets. We still prefer investment grades over high yields given the looming recession risks, as they are less affected by widening spreads. On the other hand, we are turning positive on duration, as the long end yields have likely peaked. Further bond buying in the market due to the weaker economy, as well as the yield curve normalisation, could offer further upside in the long duration IG space. Looking forward to 2023, we would avoid high yields, while overweighting on short and long term IGs as we expect the economy continue to slip.