There’s good news for fixed-income investors this year, according to Goldman Sachs Asset Management. Bonds had a brutal 2022 as the Federal Reserve hiked interest rates to combat inflation. Prices dropped and, because prices and yields move inversely, yields soared . For instance, the 10-year U.S. Treasury began the year yielding 1.5% and rose above 4% in 2022. This year, inflation and the pace of monetary tightening will slow down, along with economic growth, Goldman said. Still, the timing and magnitude of the improvement in inflation is uncertain and there’s still the risk of a recession, Sam Finkelstein, chief investment officer of fixed income and liquidity solutions, and Whitney Watson, head of fixed income portfolio management, construction and risk, wrote in a note. “But amid high uncertainty and mixed signals from economic data one thing is clear: it is time to bring on bonds. We believe the sharp rise in yields in 2022 presents fixed income investors with the most attractive income and total return potential in more than a decade,” they said. Goldman Sachs says it manages $1 trillion in fixed-income assets. Near term, Goldman Sachs Asset Management favors short-duration and high-quality fixed-income assets such as investment-grade credit and agency mortgage-backed securities (MBS). Finkelstein anticipates “high single-digit returns.” MBB 1Y mountain iShares MBS ETF tracks U.S. investment-grade agency mortgage-backed securities “More broadly, we think higher yields represent a good entry point for strategic investors in all fixed income markets, including EM debt where idiosyncratic risks have overshadowed broader resilience,” he added. Once inflation normalizes and the growth outlook becomes clearer, Goldman believes there will be an opportunity to add exposure to cyclical assets, including high-yield credit and emerging-market debt. — CNBC’s Michael Bloom contributed reporting.
